Delta Air Lines (DAL) reaffirmed second quarter guidance that the company lowered last month but the stock is falling after Deutsche Bank downgraded it to Hold this morning.
Delta guided for second quarter earning per share of $1.65-1.75. Last month, the company lowered EPS guidance to $1.65-1.75 from $1.80-2.00 due to rising oil (jet fuel) prices while non-fuel costs were also tracking towards the high end of its +1-3% guidance. Delta expect non-fuel costs to trend lower for the rest of the year.
The company also reiterated its 13-14% adjusted pre-tax margin guidance for the quarter (which was lowered from 14-16% last month).
Delta reaffirmed unit revenue up 4-5%, in-line with last month's outlook, which was raised from 3-5% growth.
Higher fuel costs present a headwind for the airlines, but Delta continues to report strong top-line results indicated healthy demand.
Delta will report second quarter results on the morning of Thursday, July 12. Most of the key second quarter results have already been disclosed so investors will focused on third quarter guidance and more importantly whether Delta will cut capacity in the second half of the year in response to higher fuel prices. Delta is the first major airline to report so this will be key for the industry.
Delta has been out of favor since cutting 2018 EPS guidance after oil prices recovered back toward trend highs above $70/barrel. The nation's largest airline has said there is a 6-12 month fuel cost recovery lag and that fares will go up if oil prices remain high.
Deutsche Bank downgraded Delta, American (AAL) and United (UAL) to Hold this morning on a lack of positive catalysts in the face of increasing headline/macroeconomic risks related to a potential trade, among other things.
All three stocks trade with an enterprise value near 5x EBITDA estimates for 2018.