Delta Air Lines (NYSE: DAL) shares lost their lift following the Q2 release, but investors should not worry. The results were weaker than expected, including decelerating growth and rising costs, but they align with the long-term outlook. The long-term outlook is for steady, normalized growth and profitability for this industry leader, solid cash flow, and debt reduction, leading to investment-quality debt ratings and increasing capital returns. Today’s takeaway is that this market is experiencing a knee-jerk reaction to less-than-expected (but still solid) results, opening up a buy-the-dip opportunity. 

Delta Air Lines Growth Produces a Record-Setting Quarter

Delta’s results are only bad because they came below the consensus estimates. However, the $16.7 billion in reported revenue and $15.4 billion in adjusted operating revenue are up compared to last year. The reported revenue rose 7.2%, and adjusted operating revenue rose 5.4% to set a quarterly record. 

Revenue strength was driven by increased loyalty, premium, and “other” services, which also come with a higher margin. Cargo is another area of strength, rising by 16%, and corporate and international business are also positive. Corporate business rose by double digits and is expected to continue growing. International grew by a slower 4% but is impacted by geopolitical factors. 

Earnings growth was also below consensus, but strong concerning revenue, only 80 bps shy of consensus compared to the 190 bps top-line miss, and both misses were slim. The salient point is that the operating margin came in at a solid 15% to drive $2.5 billion in cash flow and $1.3 billion in free cash flow. The cash flow allowed for the early repayment of some debt, about $1.4 billion, which brought the debt-to-EBITDAR ratio down by 0.2X to 3.8X and closer to investment quality. 

Guidance is another non-starter for today's market that aligns with the long-term outlook. Guidance for the year was reiterated in a range bracketing the consensus estimate, an estimate that forecasts growth and robust cash flow. 

Delta Hikes Its Dividend Payment by 50%

Among the highlights of the Q3 report is the 50% increase in dividend payments. Expected to be paid in the September quarter, the new $0.15 quarterly payout amounts to an annualized return of 1.45%, with shares at a four-month low. The increase is due to the company’s debt reduction, improved margin, and free cash flow position. Investors should expect additional robust increases over the next two years because of the revenue, earnings growth, and debt reduction forecast. 

The analysts have been bullish on Delta but may begin to shift sentiment on this news. However, downgrades are unexpected, and the Buy rating should remain intact. The risk is that price targets will fall, adding downward pressure to the market. Until then, the low end of the analysts' range is $50 or 20% above Delta’s new low. 

Delta Share Prices Come in for a Landing: Will it be Touch and Go?

Delta’s results caused the stock to fall 10% in premarket trading. The question is whether the market will buy this dip or not. The odds are high that the institutions that have purchased this stock on balance since 2020’s lows will continue to invest and support it at its current levels. If not, Delta's shares could move down to the low end of its trading range and shed another 30% in value before hitting bottom.