Copa Holdings Earnings Soar as Demand Grows

By Travis Hoium Markets Fool.com

Copa Holdings, S.A. (NYSE: CPA) is riding a strong wave of demand in Latin America -- and fairly slow increases in costs -- to higher earnings. Fourth-quarter 2016 results released after the market closed on Wednesday showed a sharp jump in revenue and a jump in net income as well, even when excluding one-time gains.

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The airline industry is in a strong position today as demand grows and customers become more willing to pay higher prices. Here's a look at what investors learned about the last three months.

Image source: Getty Images.

Copa Holdings results: The raw numbers

Metric

Q4 2016

Q4 2015

Year-Over-Year Change

Sales

$601.3 million

$532.6 million

12.9%

Net income

$95.8 million

($441.1 million)

N/A

Diluted EPS

$2.26

($9.44)

N/A

Data source: Copa Holdings, S.A. Q4 2016 earnings report.

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What happened with Copa Holdings this quarter?

The headline numbers above don't always tell the whole story, especially in the airline industry, where fuel and currency hedges can obscure results from quarter to quarter. Here's a look at some of the key operating metrics investors should be looking at.

  • Revenue growth was driven by a 4.5% increase in revenue passengers carried to 2.15 million and a 11.3% increase in revenue passenger miles. This boost was a result of an increase in load factor from 74.8% to 81.6% last quarter.
  • Passenger revenue per average seat mile jumped 10.5% to 10.3 cents.
  • On the cost side, fuel consumption rose 2.6% to 72.4 million gallons and the average price of fuel rose 0.7% to $1.96 per gallon.
  • Cost per average seat mile rose 5.3% to 9.5 cents, a much slower growth rate than revenue, leading to expanding margins.
  • Results on a GAAP basis were helped by a $24.3 million non-cash gain on fuel hedges and an $11.5 million gain on non-cash currency translation of Venezuelan bolivars. Adjusted earnings per share without those items would have been $1.42, up from $0.96 a year ago.
  • On the balance sheet, cash and short-term investments increased 18.9% to $814.7 million and debt fell 9% to $1.12 billion.

What management had to say

Management said the company is preparing for even more growth after the delivery of a Boeing 737-800 in January. This brings the fleet to 100 aircraft, and given the operating results last quarter, that should bring with it greater profitability.

Copa also declared a dividend of $0.51 per share per quarter, payable in March, June, September, and December this year.

Looking forward

Airline stocks have had a huge tailwind lately as the economy continues its recovery and utilization of aircraft rises around the world. That's a good problem to have for companies like Copa Holdings, and with costs under control and demand on the rise, the future looks bright.

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Travis Hoium has no position in any stocks mentioned. The Motley Fool recommends Copa Holdings. The Motley Fool has a disclosure policy.