Delta Overcomes Rising Fuel Costs

Delta Air Lines, Inc. (NYSE: DAL) stock gained some altitude on Thursday after the company reported better-than-expected second-quarter earnings and revenue numbers but cut its full-year guidance due to higher fuel costs.

Delta stock traded higher by more than 1 percent but remain down 9.6 percent year-to-date.

Delta reported adjusted earnings per share of $1.77 on revenue of $11.78 billion. Both numbers topped consensus analyst estimates of $1.72 and $11.72 billion, respectively.

Passenger revenue per available seat mile was up 4.4 percent after gaining 4.3 percent in the first quarter. Capacity was up 3.5 percent on the quarter.

In addition, Delta cut its full-year 2018 EPS guidance from a previous range of between $6.35 and $6.70 to a new range of between $5.35 and $5.70.

“We have seen early success in addressing the fuel cost increase and offset two-thirds of the impact in the June quarter,” CEO Ed Bastian says in a statement.

Delta says second-quarter earnings took a $600 million hit from higher fuel costs.

“With strong revenue momentum, an improving cost trajectory, and a reduction of 50 to 100 bps of underperforming capacity from our fall schedule, we have positioned Delta to return to margin expansion by year end,” Bastian says.

Delta also announced a 15 percent dividend hike to 35 cents per quarter. The new dividend will bring Delta’s yield to roughly 2.8 percent. Delta returned $813 million to shareholders in the second quarter via dividends and buybacks.

Delta guided for full-year revenue growth of between 7 and 8 percent. For the third quarter, Delta is expecting EPS of between $1.65 and $1.85 and total unit revenue (excluding refinery sales) of between 3.5 percent and 5.5 percent. Analysts had been expecting revenue growth of between 3 percent and 5 percent.

Bank of America analyst Andrew Didora says Delta’s revenue guidance was strong and its EPS guidance cut was expected given the surge in oil prices.

“With a trimming of fall capacity, DAL is making…

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