Copa Holdings Stock Down 13% on Earnings Shortfall, Guidance Reduction, but Don't Ignore the Bigger

What's happening:Central and South American airlineCopa Holdings reported second-quarter financial results today, Aug. 13, and the stock is losing altitude. As of this writing (just before noon) shares are down almost 13%. After gaining about 15% this spring, Copa's stock has been steadily heading south since early May:

CPA data by YCharts.

Why it's happening:Plain and simple, Copa came up well short of most expectations, including the company's own guidance set last quarter.

The highlights:

  • Net income of $64 million ($1.46 EPS) -- which included fuel hedge gain of $23 million.
  • Adjusted earnings per share without fuel hedge benefit $0.93, down 65% from last year.
  • Operating income down 63%.
  • Yield per passenger mile down 20%.

Not to highlight only the "bad," but this is what the market is seeing today, and responding to. It's also not helping that management cut its guidance again, marking the second reduction already this year:

Guidance from first quarter:

Source: Copa Holdings Q1 earnings.

Just-revised guidance:

Source: Copa Holdings Q2 earnings.

As you can see, the company is forecasting more of the same declines in growth that it has reported in the first couple of quarters of 2015.

It's also worth noting that foreign exchange translation is playing a role in the results as well, and remembering that this is a cyclical trend that could be a benefit in the future as much as it's a challenge today.

Looking aheadYes, Copa Holdings' guidance cut is indicative of the continued economic struggles in several of the countries that it services in South America, and there's a good chance that these struggles will last for some time. And that will undoubtedly have some impact on the airline. However, Copa has managed to navigate the challenges and remain profitable, and still operates in one of the best long-term growth markets in airline travel: Latin America. Furthermore, the airline is investing for the long term with more than 80 new aircraft on order, scheduled to begin joining the fleet starting in 2018.

For income-seekers, Copa announced that it will pay its expected $0.84 per-share dividend on Sept.15, and its cash flows are sufficient to support that level for the time being.

There's likely to be plenty more short-term challenges with plenty of economic uncertainty, and that's going to bounce the stock around from quarter to quarter, but Copa -- the business -- continues to operate well in the existing environment, and has a (please forgive the unavoidable pun) very long runway of growth ahead of it.

80 more of these will join the Copa Airlines fleet in coming years. Image source: Copa Holdings.

The article Copa Holdings Stock Down 13% on Earnings Shortfall, Guidance Reduction, but Don't Ignore the Bigger Picture originally appeared on

Jason Hall has no position in any stocks mentioned. The Motley Fool recommends Copa Holdings. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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