TLDR
- Delta Air Lines stock dropped about 3% in early trading after missing third-quarter profit estimates.
- The airline posted record quarterly revenue of $17.6 billion, but high jet fuel costs hit earnings hard.
- Delta cut its full-year earnings per share guidance to $5.10-$5.60, down from $6.50-$7.50.
- Adjusted Q3 earnings per share came in at $1.72, below analyst expectations.
- Fuel expenses jumped 62% to $4.1 billion as jet fuel prices climbed roughly 60% since June lows.
Delta Air Lines stock fell around 3% before the market open on Friday. The drop followed a third-quarter earnings miss and a steep cut to the airlineās full-year profit outlook.
The Atlanta-based carrier reported adjusted earnings per share of $1.72 for the quarter. That came in below the $1.92 analysts had expected, according to figures reported by Investing.com.
Revenue told a different story. Delta posted $17.6 billion in adjusted revenue, a quarterly record for the company and broadly in line with Wall Street forecasts.
So demand clearly isnāt the problem. Fuel is.
Fuel Costs Are Squeezing Profits
Fuel expenses jumped 62% to $4.1 billion compared with the same quarter last year. The average fuel price paid was $3.61 per gallon.
Delta expects fourth-quarter fuel prices to climb even higher, to around $4.25 a gallon. CEO Ed Bastian said the company is on track to absorb a $6 billion increase in fuel costs this year while still generating a $4.5 billion pretax profit.
Thatās a big number to swallow. Itās also why the full-year guidance took such a hit.
Delta now expects full-year earnings per share of $5.10 to $5.60. Thatās down sharply from the previous range of $6.50 to $7.50, and it falls below the analyst consensus of $5.46 at the midpoint.
For the fourth quarter, Delta guided for earnings per share between $1.15 and $1.65. The midpoint of $1.40 is roughly in line with the $1.42 consensus.
Passenger revenue for the quarter came in at $15.53 billion. Cargo revenue was $301 million, and the airline reported a passenger load factor of 86%.
Adjusted operating income was $1.7 billion, giving an operating margin of 9.4%. Pre-tax income landed at $1.5 billion, an 8.5% margin.
Delta Is Still Outperforming Rivals
Despite Fridayās drop, Delta stock is still up around 18% for the year as of Thursdayās close. Compare that with United Airlines, down 4%, and American Airlines, down 17%.
Peers Southwest and Allegiant also fell in early trading on their own earnings. Deutsche Bank analyst Michael Linenberg named Delta, United, Southwest, and Allegiant as the only four airlines likely to stay profitable this year if fuel prices hold near $4 a gallon.
Delta has a few advantages working in its favor. Premium revenue jumped 18% in the quarter, reflecting travelers who are less sensitive to higher fares.
Cargo revenue climbed 29%, and maintenance and repair revenue rose 28%. Delta also owns a refinery in Trainer, Pennsylvania, which is helping offset some of the fuel pain.
Refinery revenue surged 76% to $2.6 billion in the third quarter. Over the first nine months of the year, refinery revenue is up 72% to $6.3 billion.
Delta expects the refinery to save around 40 cents a gallon on fuel costs in the fourth quarter. Jet fuel prices have risen about 60% since hitting wartime lows in June, following the U.S. conflict with Iran that began February 28.
Chief Commercial Officer Joe Esposito said Delta is managing capacity carefully, with total seat growth under 2% expected in the fourth quarter. The airline is trimming main cabin seats as part of that plan.
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