Spirit Airlines Stock Descends Despite Capacity Gains, Earnings Beat

By Tim BeyersFool.com

Spirit Airlines stock is flying higher this morning on better-than-expected results. Image source: Benjamin Beyers for The Motley Fool.

Shares of Spirit Airlineswere up in pre-market trading as investors cheered better-than-expected second-quarter results. The stock has since lost ground and is down 1.74% as of 11:46 a.m. EDT. Here's a closer look at the Q2 totals versus Wall Street's projections:

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SAVE Revenue Year-Over-Year Growth Earnings Per Share Year-Over-YearGrowth
Consensus estimate $553.22 million 10.8% $1.01 10.9%
Q2 actual $553.42 million 10.8% $1.03 13.2%
DIFFERENCE $0.20 million 0% $0.02 2.3%

Sources: S&P Capital IQand Spirit Airlines press release.

Commenting on the results, CEO Ben Baldanza said in a press release:

What went right:Gross margin improved from 33% in last year's Q2 to 39.9% over the past three months as Spirit kept a lid on costs and optimized revenue while expanding. Specifically, the carrier added three new A320 aircraft and 24 new nonstop routes in the second quarter. A 17.4% drop in the price of fuel no doubt contributed to the gains.

What went wrong:Spirit didn't fill up its new routes as fast as investors expected. Available seat miles jumped 30.1% but revenue passenger miles -- the amount actually alloted for ferrying travelers -- rose 27.8%. Load factor dipped 1.5 percentage points.The good news? None of this had a meaningful impact on cash flow from operations, which has more than doubled year over year through the first six months of 2015.

What's next:Spirit Airlines didn't include a third-quarter outlook in its press release. Nevertheless, analysts tracked by S&P Capital IQ have the company generating $580.88 million in revenue and $1.18 a share in profit after accounting for stock-based compensation and other noncash items. That compares with $519.80 million and $1.01 a share in last year's Q3.

Longer term, analysts have Spirit growing earnings by an average of 20.27%annuallyover the next three to five years.

In the meantime, investors should pay close attention to the delta between revenue per available seat miile and cost per available seat mile as capacity increases and the fleet shifts. Maintaining a healthy gap as Spirit modernizes is key to sustainable profit.

The article Spirit Airlines Stock Descends Despite Capacity Gains, Earnings Beat originally appeared on Fool.com.

Tim Beyerswill be flying Spirit Airlines tomorrow morning, it turns out. He's also a member of theMotley Fool Rule Breakers stock-picking team and the Motley Fool Supernova Odyssey I mission and owned shares of Apple at the time of publication. Check out Tim'sweb homeandportfolio holdingsor connect with him onGoogle+,Tumblr, or Twitter, where he goes by@milehighfool.The Motley Fool recommends Spirit Airlines, and recommends and owns shares of Apple. 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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