Azul (AZUL) Surpasses Earnings And Revenue Estimates In Q3

Azul S.A. (NYSE:AZUL) reported third-quarter 2018 earnings per ADS of 25 cents, which beat the Zacks Consensus Estimate of 8 cents. However, the bottom line plunged on a year-over-year basis. The downturn was due to high fuel costs and devaluation of the Brazilian Real. Notably, fuel price per liter surged 47.1% while the Brazilian Real declined 25.1% year over year.

Operating revenues in the quarter were $619.9 million (R$2441.7 million), which surpassed the Zacks Consensus Estimate of $586.3 million. The top line improved on a year-over-year basis on the back of high passenger revenues. In fact, passenger revenues, contributing 94.7% to the top line, rose 20.9% on a year-over-year basis. The upside can be attributed to solid demand for air travel among other factors.

Concurrent with earnings release, Azul and Copa Holdings, S.A.’s (NYSE:CPA) wholly-owned subsidiary Copa Airlines have entered into a new codeshare agreement to facilitate travel. Additionally, the airlines have also unveiled frequent flyer co-operation agreement, which is expected to be operational from December.

Operational Statistics

Consolidated revenue passenger kilometers (RPK) — measuring revenues generated per kilometer per passenger — increased 20.2% year over year. The metric rallied 40.4% and 14.3% on international and domestic fronts, respectively.

Consolidated available seat kilometers (ASK) — measuring an airline's passenger carrying capacity — grew 19.3% year over year. While domestic capacity rose 13.1%, international capacity expanded a massive 42.6%.

During the quarter under consideration, load factor (percentage of seats filled with passengers) was 83.7% compared with 83.1% in the year-ago quarter. This key metric improved as traffic growth outweighed capacity expansion.

Average fares improved 11.1% in the quarter under review. Net passenger revenue per ASK inched up 1.3%, while total revenue per ASK climbed up 2.7% year over year. Cost per ASK was up 8.7% on the back of rising fuel costs and an unfavorable currency fluctuation. The metric excluding fuel declined 1.8%.

Financials

Azul exited the third quarter with total liquidity (cash, cash equivalents, short-term and long-term investments and receivables) of R$4,117.8 million, reflecting an increase of 7.2% from the second-quarter 2018’s tally. Additionally, long-term debt totaled R$3,076.9 million, almost flat sequentially.

Total operating expenses in the quarter rallied 29.7% year over year to R$2,267.5 million. Meanwhile, total volume of departures rose 5.1%.

Revised 2018 Outlook

With rising fuel prices and depreciation of the Brazilian real against the U.S. dollar, the company lowered capacity forecast for the year. It anticipates the same to increase around 16% compared with the previous projection of 16-18%. Simultaneously, the carrier has trimmed guidance for operating margin. Azul projects operating margin to be around 9%. Per the previous outlook, the metric was projected between 9% and 11%. Further, unit costs are now predicted to decline around 1% in 2018 compared with the previous projection of a fall of 1-3%.

Zacks Rank & Upcoming Releases

Azul has a Zacks Rank #4 (Sell). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Investors interested in the broader Transportation sector are awaiting third-quarter 2018 earnings reports from key players like Frontline Ltd. (NYSE:FRO) and LATAM Airlines Group S.A. (NYSE:LTM) . Frontline and LATAM Airlines will release results on Nov 16 and Nov 20, respectively.

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