Delta Air Lines slumps 9% after Q2 results

Delta Air Lines (DAL.US) reported Q2 2024 earnings report today ahead of the Wall Street session open. Results for the April-June 2024 period turned out to be slightly weaker than expected by analysts. Revenue grew by 5.4% YoY, while operating income and net income dropped around 9% and 11% YoY, respectively. Margin deterioration was triggered by the airline charging lower fares amid increased capacity.

Airlines have increased their capacity for the summer period, anticipating higher demand. However, as carriers made more seats available, it became harder to fill this increased capacity. As a result, airlines had to resort to price cuts to attract customers. Delta Air Lines CEO said that capacity in the industry currently exceeds demand by 3-4% and that the problem is industry-wide. As a result, Delta will limit its capacity growth going further and increase its capacity by no more than 6% in the current quarter.

However, the big disappointment in Delta's earnings release were forecasts. Company expects revenue growth of 2-4% YoY in Q3 2024, much slower than 5.3% YoY expected by analysts. Moreover, operating margin is seen at 11-13% in July-September 2024 period, weaker than 16% reported in a year ago quarter. Finally, adjusted EPS forecast turned out to be a big disappointment, with the company expecting it to reach $1.70-2.00 in Q3 2024. Given that market expected a $2.04 adjusted EPS for Q3, this means that even company's best case scenario (top of the range) is weaker than market expectations.

Delta Air Lines Q2 results

• Adjusted revenue: $15.41 billion vs $15.43 billion expected (+5.4% YoY)
  • Passenger revenue: $13.84 billion vs $13.92 billion expected (+4.8% YoY)
  • Cargo revenue: $199 million vs $168 million expected (+16% YoY)
• Passenger load factor: 87.0% vs 87.9% expected (88.0% a year ago)
• Available seat miles: 74.66 billion vs 73.65 billion expected (+8.2% YoY)
• Revenue passenger miles: 65.24 billion vs 64.75 billion expected (+7.3% YoY)
• Adjusted operating income: $2.269 billion vs $2.267 billion (-9.0% YoY)
  • Adjusted operating margin: 13.6% vs 14.5% expected (16.0% a year ago)
• Adjusted net income: $1.528 billion vs $1.530 billion expected (-11.3% YoY)
  • Adjusted net margin: 9.2% vs 9.3% expected (11.1% a year ago)
• Adjusted EPS: $2.36 vs $2.38 expected ($2.68 a year ago)
• EPS: $2.01 vs $2.84 a year ago

Delta Air Lines Q3 forecast

• Revenue growth: + 2-4% YoY vs + 5.3% YoY expected
• Operating margin: 11-13%
• Adjusted EPS: $1.70-2.00 vs $2.04 expected

Delta Air Lines full-year forecast

• Adjusted EPS (unchanged): $6.00-7.00 vs $6.60 expected

Shares of Delta Air Lines (DAL.US) trade around 9% lower in premarket today, in response to release of weak results and disappointing forecasts. Based on current premarket quotes, the stock is set to open near $42.59 -  the lowest level since mid-March 2024. If this is the case, stock will open just a touch above the mid-term support zone ranging around the 200-session moving average (purple line) and 50% retracement of the upward move launched in Q4 2023.

Source: xStation5