Delta Falls Most in S&P After Lowering Third-Quarter Targets

Sep 03, 2014 5:28 pm ET

(Updates with closing share price in second paragraph.)

Sept. 3 (Bloomberg) -- Delta Air Lines Inc. fell the most in the Standard & Poor’s 500 Index after it lowered forecasts for some third-quarter targets, dragging down the shares of other U.S.-based carriers.

Delta slid 5.2 percent to $38.82 at the close in New York, its biggest daily decline since June 12. The Bloomberg U.S. Airlines Index fell 2.9 percent, with all 11 member companies down, and the S&P 500 was little changed.

In a presentation to analysts at a Cowen & Co. conference, Delta said third-quarter revenue for each seat flown a mile will increase 2 percent to 3 percent, down from a previous forecast of 2 percent to 4 percent. The Atlanta-based carrier also lowered its quarterly operating margin outlook to 15 percent to 16 percent, from a 15 percent to 17 percent range in July.

“They just took the high end down,” Michael Derchin, an analyst at CRT Capital Group in Stamford, Connecticut, said in an interview. “It doesn’t mean they won’t make the high end.’

Chief Financial Officer Paul Jacobson, speaking to analysts at the conference, cited overcapacity in trans-Atlantic routes, geopolitical events in Russia and the Middle East, and the Ebola outbreak as weighing on unit revenue. Those issues damped unit revenue by about 1 percentage point, Delta said in a statement before the presentation.

The pared-back targets come as the third-biggest carrier raised its projection for fuel prices by 2 cents to $2.90 to $2.95 a gallon.

Delta’s shares have risen 41 percent this year, as it has seen strong U.S. demand and packed planes. The carrier reiterated today that it’s still on track to produce more than $4 billion in pretax income for 2014.

The market has punished Delta before when it has issued revenue and earnings forecasts mid-quarter that were lower than earlier projections, JPMorgan Chase & Co. analyst Jamie Baker said in a research note. Delta last said that earnings would come in at the low end of its forecasts in April 2013, and the shares fell 8 percent that day, he said.