Delta Air Lines reported record revenue and profitability in the second quarter, and it hiked its full-year earnings guidance amid strong demand and lower fuel costs.
The stock surged more than 4% ahead of the open Thursday.
Travel demand in the summer season has proved strong so far, and Delta said that was continuing into the third quarter. The July Fourth holiday weekend broke records at airports across the U.S., the Transportation Security Administration said, while Friday, June 30 was its busiest ever air travel day.
Memorial Day weekend was also strong, and robust demand between the two holidays ensured Delta reported bumper earnings.
Delta (ticker: DAL) reported adjusted earnings per share (EPS) of $2.68 on revenue of $14.6 billion. Analysts were expecting profit of $2.40 a share on revenue of $14.4 billion. Earnings also beat Delta's own guidance of between $2.25 and $2.50 a share.
Operating income of $2.5 billion was also a record, the carrier said. It increased its full-year EPS guidance to between $6 and $7, from a previous range of $5 to $6.
"With this performance, we generated record revenue and profitability in the June quarter," CEO Ed Bastian said in a statement. "Consumer demand for air travel remains robust," he added.
That trend is continuing into the September quarter, in which Delta expects revenue to be similar to the June quarter—around 11% to 14% higher than the same quarter in 2022.
Fuel costs were another key reason for Delta's strong earnings. The company's adjusted fuel expense fell 24% from the same period last year, to $2.5 billion in the second quarter. Adjusted fuel prices fell 34% to $2.52 per gallon, it added.
Delta's peers were also lifted following its earnings. American Airlines (AAL) stock jumped more than 3%, United Airlines rose 2.7%, Southwest Airlines was 2.2% up, and JetBlue Airways climbed 1.8%.
This is breaking news. Read a preview of Delta's earnings below and check back for more analysis soon.
Delta Air Lines is having a bumper summer in the air and in the stock market. The carrier's second-quarter earnings Thursday will reveal just how well the peak travel period is going and whether the good times can last.
The stock enjoyed a record 15-day winning streak between the Thursday before Memorial Day weekend and June 15, rising 23% over the period. The shares have continued higher since the streak snapped, and are up 48% so far in 2023.
Strong travel demand, particularly among Americans looking to fly overseas, and lower fuel costs were major drivers behind the record streak. Delta (ticker: DAL) reinstated its dividend for the first time since it suspended payouts in March 2020, which helped the streak eke out a few extra days last month.
The shares took another leg higher at the end of June after the airline raised its second-quarter earnings guidance to a range of $2.25 to $2.50 per share, from an earlier forecast of $2 to $2.25. Full-year guidance was also hiked to the top end of its $5 to $6 per-share range.
The stock's success and the recent guidance hike means it will take a fair bit to move the shares much higher. But after a record-breaking July Fourth holiday weekend, it isn't out of the question.
Expectations have been climbing in recent months as initial doubts about demand and fears of a consumer softening over the summer have turned to dust. Analysts currently expect earnings per share (EPS) of $2.40 on sales of $14.4 billion. That would be 67% earnings growth compared with the same period last year, and 17% revenue growth.
At the end of March, analysts expected EPS of $1.63, compared with the $2.40 they now forecast.
There is reason to believe Delta could even top those expectations, especially after the July Fourth travel period. The final day of the quarter, Friday, June 30, was the busiest air travel day on record, as the Transportation Security Administration screened more than 2.88 million passengers, beating the previous record on the Sunday after Thanksgiving in 2019. The build up to the holiday was marred by disruption, but it's unlikely to have a significant impact on earnings.
Delta's third-quarter earnings guidance may be the metric to watch for investors. Analysts currently expect EPS of $2.07 per share.
Melius Research analyst Conor Cunningham expects the sector's second-quarter results to come in ahead of expectations, driven by revenue beats and lower fuel costs. Turning to the third quarter, he said Delta was among those well placed to keep doing well.
"The industry dynamic remains constructive but more so for airlines with international exposure," he said. "The setup in the third quarter remains more compelling for Delta, United Airlines (UAL), and American Airlines (AAL) than it does for domestic growth airlines given the comparisons and implications for margins."
Delta only recently raised its guidance, so an earnings surprise is perhaps less likely than it is with some of its peers. However, as the first carrier to take off this earnings season, it will dictate sentiment in the sector and lay out the flight path for the likes of United and American.