It’s now earnings season once again, and investors are certainly taking a cautious tone with certain groups of stocks today. Besides tech stocks, which are having a very negative day with the Nasdaq down a whopping 1.7% this afternoon, airline stocks are also seeing marked declines in today’s session.
Shares of Delta Airlines (NYSE:DAL), American Airlines (NASDAQ:AAL), and United Airlines (NASDAQ:UAL) are down between 4% and 6% at the time of writing, as Delta was the first of the major carriers to announce earnings.
The company reported second-quarter results that missed expectations, as record revenue came in below where analysts had pegged their consensus target. The airline brought in $15.41 billion in revenue compared to $15.44 billion expected. The results also missed on the bottom line slightly, bringing in adjusted net income of $1.528 billion versus the $1.531 billion expected.
These are slight misses, so investors may be scratching their heads as to the reason behind the decline. Well, it appears Delta also put forward guidance for Q3, which has also underwhelmed. The company expects earnings to come in between $1.70 and $2 per share, below the previous $2.03 number it put forward in Q1.
Let’s dive into what to make of these numbers, and why investors are appearing to take a cautious approach to airline stocks today.
Airline Stocks Decline on Weak Delta Earnings
Delta noted that the summer travel season remains strong, and consumer spending appears to align with where the company expected ticket sales to come in. However, Delta’s CEO noted that supply (the number of available seats) has risen, which may have resulted in operating profit and earnings that missed the mark, according to analyst estimates.
It appears many in the investor community are concerned that any sort of slowdown could lead to a steep decline in margins, with added concern around the health of the average American consumer. Lower fares are great for the consumer but can impact the bottom lines of other airline stocks. This group typically trades as a unit, so today’s decline in other major carriers isn’t unexpected.
The airline sector is highly cyclical, so top airlines typically rally in boom times like this. To a certain extent, most major airlines have seen strong appreciation thus far this year.
But the story can change on a dime, and many seem to be expecting some sort of downturn on the horizon. Whether these fears are warranted or not remains to be seen. But it’s clear plenty of enthusiasm was already priced into these airline stocks before this print, leading to today’s move.
On the date of publication, Chris MacDonald did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
