Earnings preview: Delta Air Lines headed for a mixed Q3

Delta Air Lines (NYSE: DAL) this week lost significant market value after the company issued third-quarter guidance that fell short of expectations, reflecting softer revenue growth and higher costs. Meanwhile, the report for September showed broad-based revenue growth amid modest improvement in traffic.

The Atlanta, Georgia-based aviation firm is set to unveil its third-quarter numbers on Oct 10 at 7:00 am ET. On average, market watchers expect earnings of $2.26 per share, which is up 26% from last year’s third quarter. The improvement reflects an estimated 5.4% growth in revenues to $12.6 billion.

Mixed Cost Scenario

Higher non-fuel costs might weigh on profitability during the quarter, which does not bode well for the company’s shares. In all likelihood, the stock will dip further next week and remain low since then. In recent weeks, several schedules were canceled due to unfavorable weather conditions, but its negative impact on earnings would be partially offset by lower oil prices.

Related: JetBlue poised to overcome short-term challenges

The performance in the first two months of the quarter was reasonably good, especially in the domestic segment. Delta is likely to report mixed results for the September-quarter, after beating estimates in each of the four trailing quarters.

Boeing Impact to Linger

Going forward, traffic will be impacted by the planned reintroduction of the grounded Boeing 737 Max planes, due to an estimated capacity oversupply. Once regulators give the green signal to resume 737 Max services, some of the leading airlines will also get delivery of new 737 Max units against pending orders. The additional supply will result in pricing issues in the long run, putting margins under pressure.

For the second quarter, Delta reported stronger-than-expected revenue and profit, reflecting higher non-ticket and premium product revenues. Adjusted earnings surged 32% annually to $2.35 per share on revenues of $12.5 billion, which is up 8.7% from the year-ago period. Unit revenues grew across all geographic regions.

Peer Performance

Among others, Southwest Airlines (LUV) recently reported better-than-expected earnings for the most recent quarter as revenues moved up to around $6 billion, despite the disruptions caused by the 737 Max grounding. American Airlines (AAL) posted double-digit growth in June-quarter earnings and revenues, aided by the stable demand for travel.

Delta Air Lines Q2 2019 Earnings Call Transcript

After reaching a new peak in July, Delta stock retreated and is currently trading slightly above the $50-mark, matching the value seen a year ago. Since the beginning of 2019, the shares moved up around 12%.

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