Delta Earnings: Fuel Costs, Refinery Edge and the Guidance Number That Matters
Delta Earnings: Fuel Costs, Refinery Edge and the Guidance Number That Matters
- Delta Air Lines is set to report earnings on Wednesday, April 8, before the market opens.
- Full-year EPS guidance is the key item to watch, as surging jet fuel costs from the war in the Middle East impact operating costs.
- Delta has a structural edge over its rivals through its Monroe refinery, which lets the company essentially capture profits from the crack spread between crude oil and jet fuel prices.
Delta to report earnings on Wednesday, April 8
Delta Air Lines (DAL) is scheduled to report quarterly earnings on Wednesday, April 8, before the market opens.
The stock reached an all-time high back in February, hitting 76.39 before retreating to end the month in the red.
Now, the stock is trading around 65.64 on Tuesday, a day ahead of earnings, nearly 14% off its recent highs.
The broader market, and airline stocks, continue to move largely off war headlines, especially with the impact to energy markets.
Delta’s full-year EPS guidance will hold a lot of influence for investors. Back in January, Delta guided for $6.50 to $7.50 for full-year guidance. A guidance cut would likely be taken as a bearish signal.
Delta holds an advantage versus competitors when it comes to jet fuel
Investors are keenly focused on how jet fuel prices will impact profit margins going forward, and Delta is the first major airline to report this quarter, making it a bellwether of sorts.
Crude oil and fuel prices have surged amid the war, with the closure of the Strait of Hormuz essentially closing off a fifth of the world’s crude exports.
Jet fuel represents a substantial portion of operating costs for Delta, about 17-18% according to its latest earnings report.
However, Delta has a unique position in the market because it owns an oil refinery that produces jet fuel. Delta’s refinery still buys oil near market prices, but the profit it makes on refining into fuel stays within the company since it owns the refinery.
Delta essentially pockets the spread between oil prices and jet fuel prices, known as a crack spread. At a time when the spread widens, like now, its refinery makes more profit.
What investors expect from Delta earnings
According to TradingView, Delta is expected to report earnings per share (EPS) of $0.58 on $14.05 billion in revenue.
A year ago, Delta reported EPS of $0.46 on $12.98 billion in revenue. Last quarter, it reported EPS of $1.55 on $14.61 billion in revenue.
Delta missed on revenue last quarter, but it beat on EPS. In fact, the revenue miss last quarter was the only time Delta missed on its numbers over the past year of earnings.
Trading Delta earnings
Delta traded with an implied volatility rank (IVR) of 60.4 as of April 7. That means volatility is slightly elevated compared with the past year of trading. Options on the stock show an expected move of +/- 4.08 points, or 6.18% of Tuesday’s 65.64 stock price. The expected move range is noted by the blue horizontal lines on the chart below.
The stock has recovered from its initial drop in March when the war broadly dragged down equity prices, dipping below its 200-day simple moving average (SMA) for the first time since last summer.
Tuesday’s trading saw the stock price trade between its 9- and 21-day exponential moving averages (EMAs). Prices are now in limbo between the February swing high and March swing low of 76.39 and 55.28, represented by the yellow lines on the chart, respectively.
Given that the expected move would keep prices within this range where technical resistance and support could be expected, Delta likely won’t receive a clear technical direction immediately after its earnings report.
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