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Delta Air Lines misses on earnings but posts profit in Q2

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Yahoo Finance Live anchors discuss second-quarter earnings for Delta.

Video Transcript

BRAD SMITH: Switching gears here. Demand is high for Delta Airline seats, pushing fares higher, but Wall Street had higher hopes for earnings. The stock right now trading lower pre-market by about 6.3% after the carrier reported Q2 earnings EPS that fell short of expectations and adjusted revenue for the quarter of $12.31 billion. Despite the miss, Delta did post a profit for the quarter.

CEO Ed Bastian said that the airline expects the strong demand to continue as it heads into the fall travel season. I got the chance to speak with Bastian on those results. Here's what he had to say.

ED BASTIAN: In fact, the month of June, we had our highest revenues in our history at 104% of June of 2019 levels. So that's very, very encouraging. And I think the second thing is that we delivered a meaningful profit for the quarter-- an operating profit of $1.4 billion, 12% operating margin. That's only about five points off the margin we had in the June quarter of 2019, despite the fact fuel prices are almost twice what they were at that point.

BRAD SMITH: And so I want to break this down kind of in two different ways here, but mostly on this kind of alliterative theme of costs and capacity. Because if you look at the costs-- highly driven by some of the energy prices and fuel prices specifically that are inputted into this business. That's kind of hot potato to consumers. And so, for the consumers, they're also experiencing lower capacity right now.

Delta had previously been forecasting for the capacity for this quarter to actually reach 84% of 2019 levels. Right now, sitting at just below that at 82% based on what Ed Bastian had to tell me on the call yesterday.

BRIAN SOZZI: Yeah, it was it's interesting. You know, we've heard for the past few weeks that higher inflation is priced into stocks. But yesterday, look what we heard from PepsiCo. Mid-teens inflation outlook for this year that's significantly higher than we saw on the CPI today.

You had Delta. What was that? $1 billion year year-over-year increase in fuel costs. Much higher inflation. Outstripping the gain in sales. Seeing the stock getting hammered here in the pre market or losing altitude. Hottest ticker on our site. It tells you that the market is still not comfortable with that inflation that the companies are seeing, and it may not be priced into these stocks, despite a lot of them being in bear markets.

JULIE HYMAN: Well, but it depends on the stock. And that's what we keep hearing over and over again. Not just now, but all this year, really. It's a stock picker's market, which tends to be an old saw, right?

But, in this case, it seems more true, perhaps, than usual because you have a Pepsi on the one hand, which is able to raise prices enough to recoup those higher costs. And then you have a Delta on the other hand, which isn't seeming to navigate it because it's got capacity constraints also, pilot constraints, for example, also. And so we're really maybe going to see more divergences in this market.

BRIAN SOZZI: Yeah, I'll just say it quickly. These quarters from both these companies-- to your point, I go back to what Roger Reed told us yesterday. He's bullish on Chevron, Exxon. If anything, these two quarters suggests maybe those are some plays. Maybe those names you look around.

BRAD SMITH: And, actually, I asked Ed Bastian that very question about shareholder value and returning that value to shareholders. As we're seeing all of the airlines, at least this morning, moving lower here over the extended period of time, year to date, you're also seeing significant declines across the board in the skies. And particularly for Delta Airlines, what he had to say was that they're going to be looking across where their costs can actually be managed best.

Of course, Delta, one of the airlines-- one of the only airlines that has its own kind of refining practices that can also help dampen some of the blow on the energy costs that they have to input. But, at the same time, going forward from here, these prices that they're seeing on fuel that they're going to continue to pass through to consumers, that's not diminishing any time in the near future.

BRIAN SOZZI: Tiny thing. When you talked to him, how did he sound? I would say Ed is usually one of the more upbeat CEOs. They are coming out here with an upbeat, I would say, third quarter outlook. Did he sound like he's more concerned than his factor in the guidance.

BRAD SMITH: I think it was a measured tone and really optimistic about the demand that's being seen, but also measured in the number of travelers that are also still having to navigate through higher fares because demand isn't going anywhere right now. And so that is something that they're going to continue to lean into. And I don't think travelers can expect for fares to decrease rapidly in the near term.

JULIE HYMAN: OK.

BRAD SMITH: Sorry.