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Why Q2 Earnings Could Be Dampening for Delta (DAL) Stock

Delta Air Lines, Inc.DAL is scheduled to report second-quarter 2016 results on Jul 14, before the market opens. With this, Delta will kick off the earnings season in the airline sector.

This Atlanta, GA-based carrier had reported better-than-expected earnings in the first quarter of 2016 on the back of low fuel costs. In fact, the carrier reported better-than-expected earnings in three of the last four quarters. The average earnings beat is 1.84%.

DELTA AIR LINES Price and EPS Surprise

DELTA AIR LINES Price and EPS Surprise | DELTA AIR LINES Quote

On the contrary, things might not be so rosy in the second quarter, let's find out why.

Factors at Play

Delta, like its peers in the airline space, has suffered greatly due to the Orlando shooting and the explosion at Shanghai Pudong airport on Jun 12. Such acts of terrorism impact airline stocks as there is a possibility of waning travel demand due to security fears.

Moreover, the Brexit vote last month has hurt stocks in the airline space. We expect a detailed update on the impact of the recent terror attacks and the Brexit vote on the conference call. Moreover, we expect the struggles to continue on the revenue front in the second quarter of 2016. Foreign currency headwinds and the recent adverse macro events are likely to hurt the top line in the quarter. Delta expects passenger revenue per available seat mile (PRASM: a key measure of unit revenue) to decline approximately 5% in the second quarter (the previous guidance had called for a decline of around 4.5%).

Delta expects operating margin to be around 17% in the second quarter (the previous guidance had projected the metric at around 21%). Average fuel price per gallon is expected in the band of $1.95 to $2.00. System capacity is projected to increase approximately 3%.

However, we are encouraged by the company's efforts to reward shareholders through dividend payments and buybacks. In May 2016, the company raised its cash quarterly dividend by 50%. We expect an update on the same at the second-quarter conference call. With so much to look forward to, we expect investor focus to remain on Delta's results. We believe that the earnings report of this key airline player will provide a foresight into the second-quarter performance of the airline industry.

Earnings Whispers

Our quantitative model doesn't call for an earnings beat either. Here's why:

Delta doesn't have the right combination of the two key ingredients - positive Earnings ESP and a Zacks Rank #3 (Hold) or better - for increasing the odds of an earnings surprise.

Zacks ESP: The Earnings ESP for Delta is 0.00%. This is because the Most Accurate estimate is in line with the Zacks Consensus Estimate of $1.55.

Zacks Rank: The carrier carries a Zacks Rank #5 (Strong Sell). Also, we caution against Sell-rated stocks going into an earnings announcement, especially if the company has seen negative estimate revisions.

Stocks That Warrant a Look

With Delta likely to disappoint, we highlight some transportation stocks that you may want to consider, as our model shows that these have the right combination for an earnings beat this quarter:

United Parcel Service, Inc. UPS has a Zacks Rank #2 (Buy) and an Earnings ESP of +2.11%. The company is scheduled to report second-quarter results on Jul 29.

American Railcar Industries, Inc. ARII has a Zacks Rank #3 and an Earnings ESP of +4.12%. The company is expected to report second-quarter earnings on Aug 3.

Genesee & Wyoming Inc. GWR has a Zacks Rank #3 and an Earnings ESP of +1.28%. The company is slated to report second-quarter earnings on Aug 1.

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DELTA AIR LINES (DAL): Free Stock Analysis Report

AMER RAILCAR (ARII): Free Stock Analysis Report

GENESEE & WYO (GWR): Free Stock Analysis Report

UTD PARCEL SRVC (UPS): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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