Delta Drops Positive Earnings Call — But Stock Falls Over Macro Concerns

Key Takeaways

• Delta notches a major earnings beat, with record revenue of $14.55 billion
• Despite the positive result, the stock price is down over concerns around tensions in the Middle East impacting flight routes and oil prices

Delta airlines has notched a big earnings beat, recorded record revenue for the quarter and laid down a overwhelmingly positive forecast for Q4. And yet, the stock tanked.

Despite the major win for the airline, the concerns over the situation in the Middle East disrupting flight plans and putting pressure on oil prices has caused airline stocks to slide throughout the week.

The good news from Delta was not enough to stop the slide, but how are things shaping up into the future?

Delta’s earnings results

Adjusted earnings for the quarter were up by an impressive 34.4%, which saw the per share figure hit $2.03. Revenue hit a new quarterly record of $14.55 billion, an increase of 13.3% over the previous quarter.

The more important aspect of that is that earnings are growing at a greater rate than revenue, showing that not only is the airline managing to increase their income, but also their efficiency at the same time.

The numbers came in above analyst forecasts, which predicted earnings to increase 29.8% to $1.96 per share.

The forward guidance was positive too. Demand is up significantly on both domestic and international routes, with the airline saying that this demand was expected to continue to be strong through December.

Middle East tensions weigh on stock price

Despite these positive results, Delta’s stock has tumbled in recent days. It was down around 3.5% in midday trade on Friday, with the situation in the Middle East making investors nervous.

The conflict escalation between Israel and Palestine have made markets jittery in general, but the airline sector could potentially be more heavily impacted than others.

As the global center of oil production, any disruption in the region risks putting pressure on oil prices, raising airline operating costs and digging into profit margins. At the same time, the situation will also likely lead to significant changes to lucrative flight routes that cross the region, increasing fuel usage and costs to operate those flights.

The bottom line

This is a good example of how short term sentiment and economic conditions can impact a stock price, even if the company’s fundamentals are solid. Delta has strong demand for their services, their profitability is improving , and yet the stock is down substantially mainly due to things out of their control.

For investors, it’s worth understanding that this doesn’t necessarily mean that Delta is a bad investment, but rather that in the short term, the overall economic environment and sentiment matters more than company fundamentals. This shouldn’t dissuade investors from their long term plans.