Earnings call transcript: Delta Air Lines posts Q3 2026 revenue beat, EPS miss

Delta Air Lines reported mixed third-quarter 2026 results, with earnings per share of $1.72 falling short of Wall Street's $1.92 forecast, while revenue reached $20.19 billion, exceeding the $17.61 billion expectation. The stock declined 2.1% to $80.41 in premarket trading, hinting that investors were more preoccupied with the earnings miss and higher fuel costs than the impressive top-line growth.

Revenue increased 16% year-over-year, driven by robust demand across leisure, business, and premium travel. Delta absorbed $1.6 billion in fuel costs, which impacted earnings but still enabled the company to generate $1.5 billion in pre-tax profit. Operating margin remained at 9.4%, and free cash flow generated $460 million in the quarter.

Management highlighted the booking of over 60% of fourth-quarter revenue, along with strong performance in premium cabins, loyalty revenue, cargo, and maintenance services, all contributing to diversification. The September quarter showcased the "structural durability" of Delta's business model, despite elevated fuel costs. Revenue growth was widespread, with gains across domestic and international markets, premium cabins, loyalty programs, cargo, and maintenance, repair, and overhaul (MRO) services.

Delta's pre-tax profit of $1.5 billion was similar to the previous year, despite a $1.6 billion increase in fuel expenses. This reinforced management's message that Delta is more resilient than many competitors when handling cost shocks.

Delta noted its leadership in on-time performance, record baggage results, and improved completion rates, even amidst twice the usual number of disruption days. Strong operational execution played a role in the mixed results, with the company leading the industry in on-time performance and recording solid baggage performance. Despite a higher-than-usual number of disruption days, Delta improved completion rates.

Revenue for the quarter amounted to $20.19 billion, up 16% compared to the previous year. Earnings per share stood at $1.72, falling short of the expected $1.92. Pre-tax profit was $1.5 billion, essentially flat year-over-year. Operating margin remained stable at 9.4%, and free cash flow reached $460 million for the quarter, amounting to $1.9 billion year-to-date.

Fuel expenses averaged $3.61 per gallon, including a refinery credit of $0.13 per gallon. Non-fuel unit costs increased by 7.3% year-over-year, driven by flat capacity utilization. Return on invested capital stood at 11%, surpassing the company's cost of capital. Adjusted net debt amounted to $13 billion at the quarter's end, with a pension surplus of $3 billion and a debt-to-equity ratio of 0.97.

Return on equity reached 20% over the past twelve months, demonstrating strong profitability on shareholder investment. Delta's fourth-quarter guidance anticipates revenue growth of around 20% from the previous year, with roughly 3% capacity growth. Earnings per share forecasts range from $1.15 to $1.65, and pre-tax profit is expected to be approximately $1.2 billion.

Management projects normalized capacity growth in 2027, along with continued international expansion, improved margins, and a journey toward achieving double-digit operating margins. The company has a history of raising dividends consecutively and offers an approximate 1% yield, emphasizing its commitment to returning capital to shareholders.