Delta Falls 3.60% as Brent Rises to $115.86 a Barrel
Key Facts
Delta Air Lines shares fell 3.60% to $76.40 in the October 23 session, after closing at $79.26 the previous day, as Brent crude rose 2.4% to $115.86 a barrel, its highest level since March. The Associated Press reported that crude had risen from less than $97 a barrel at the start of October. The increase puts fuel costs in focus for airlines, after Delta said fuel expenses exceeded its earlier forecast in the September quarter. The stock declined in a session marked by broader weakness in the U.S. equity market. The Associated Press linked rising energy prices to a decline in global oil supplies caused by the U.S. war with Iran.
Delta reported record adjusted revenue of $17.6 billion for the quarter ended in September on October 9, up 16% from the same period a year earlier. But higher fuel costs weighed on results: adjusted fuel expense totaled $4.143 billion for the quarter, up 62% year over year, and the average fuel price rose to $3.61 a gallon, up 60%. Chief Financial Officer Eric Snell said the company delivered adjusted earnings of $1.72 a share, matching the year-earlier level, "while absorbing more than $500 million in higher fuel costs compared with our expectations in early July." The figures show how revenue growth coincided with a sharp increase in a major expense line. The comparison with early July estimates also puts the increase the company faced during the quarter in its operating context.
In its annual outlook, Chief Executive Ed Bastian said Delta expects to generate about $4.5 billion in pre-tax profit in 2026, despite absorbing a $6 billion increase in fuel costs. The company also said it had generated $1.9 billion in free cash flow from the start of the year through the announcement of its September-quarter results. This follows record September-quarter revenue, while the expense figures show the scale of the increase in fuel prices the company faced compared with the previous year. Bastian's statement reflects the company's estimate of the increase's effect on its annual finances, while maintaining its forecast for pre-tax profit for the year. The cash-flow data provide another indicator of the company's reported financial performance through the results announcement.
For the December quarter, Delta expects total revenue to grow about 20% year over year, with capacity up less than 2%. Together, the forecasts indicate the company expects revenue to grow faster than seat capacity as energy costs remain in focus. The revenue outlook in the statement did not include a capacity-growth figure above 2%; the company said the increase would be lower. These estimates set an operating target for the coming period after September results showed a large rise in fuel expense. The expected revenue growth applies to the period ending in December, as Delta specified.
The stock's decline coincided with a broader market drop during trading on October 23. The Associated Press said the S&P 500 fell 0.2%, while the Dow Jones dropped 541 points, or 1%, at 11:12 a.m. Eastern time. The agency added that three out of every four stocks in the S&P 500 were lower. In the context of energy pressures, the agency attributed oil's rise to a decline in global supplies amid the U.S. war with Iran. It also forecast that the U.S. personal consumption expenditures index, due the following week, would show inflation rising to 3.6% in September, compared with the Federal Reserve's 2% target.