GOL Linhas (GOL) Q4 Earnings Lag, Revenues Beat Estimates

GOL Linhas Aereas Inteligentes S.A. (NYSE:GOL) has reported lower-than-expected earnings but better-than-expected revenues in the fourth quarter of 2017.

The company’s earnings per share (excluding 23 cents from non-recurring items) of 24 cents missed the Zacks Consensus Estimate of 25 cents. While in the year-ago quarter, the company had reported a breakeven earnings figure.

The bottom-line miss seems to have disappointed investors. Consequently, the stock fell 2.1% at the close of business on Mar 7.

Net sales, comprising cargo and passenger revenues, came in at $917.3 million (R$3 billion), surpassing the Zacks Consensus Estimate of $911.1 million. The top line grew 11.8% on a year-over-year basis on the back of higher demand for air travel as well as improved pricing. While cargo revenues increased 15%, passenger revenues rose 11.4%.

Operational Statistics

Total revenue passenger kilometers (RPK), measure of revenues generated per kilometer per passenger, climbed 8% year over year. While international RPK increased 9.2%, the metric on the domestic front gained 7.9%.

Consolidated available seat kilometers (ASK), measuring an airline's passenger carrying capacity, expanded 3.5% year over year. This upside was attributable to 9.6% growth in international ASK. The same was up 2.8% on the domestic front.

During the reported quarter, this Latin-American carrier’s total load factor (percentage of seats filled with passengers) was 81% compared with 77.6% a year ago, owing to capacity expansion outweighing traffic rise.

Average fare at this Sao Paulo-based airline increased 4.9% while average yield per passenger improved 3.1%. Net passenger revenue per available seat kilometers (PRASK) rose 7.6% while net operating revenue per available seat kilometers (RASK) was up 8%, aiding the top line. Cost per available seat kilometers (CASK) excluding fuel costs decreased 4.6% in the period under review.

Financials

GOL Linhas exited the quarter with cash and cash equivalents of R$1,026.86 million compared with R$562.21 million at year-end 2016. Additionally, long-term debt totaled R$5,942.8 million at the quarter-end compared with R$5,543.9 million at the end of 2016.

Operating expenses rose 4.9% to R$2,590.5 million, mainly due to a 21.2% rise in aircraft fuel. Both total volume of departures and seat strength available inched up 1.6% on a year-over-year basis.

2018 & 2019 Outlook

The company expects capacity to rise between 1% and 3% in 2018 while the metric is projected to increase 5-10% in 2019. Additionally, total fleet size is estimated at 118 in 2018 and for 2019, between 122 and 124. Also, the volume of departures is anticipated to grow between 1% and 3% for the current year. The same is estimated to rise in the band of 2-5% in 2019.

Another important metric, load factor (percentage of seats filled by passengers), is predicted to be between 79% and 80% in 2018, while for 2019, the same is estimated in the range of 79-81%. Going forward, we expect the company’s focus on capacity discipline to result in increasing its yields.

Operating earnings before interest and taxes (EBIT) margin, a measure for the company's earnings ability, is estimated at around 11% this year whereas 13% for the metric is predicted next year. While EBITDA (earnings before interest, taxes, depreciation and amortization) margin is anticipated at approximately 16% in 2018, the metric is likely to be around 18% in 2019.

Zacks Rank & Key Picks

GOL Linhas carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the airline space are International Consolidated Airlines Group (LON:ICAG) SA (OTC:ICAGY) , Delta Air Lines, Inc. (NYSE:DAL) and Southwest Airlines Co. (NYSE:LUV) . While International Consolidated Airlines sports a Zacks Rank #1 (Strong Buy), Delta Air Lines and Southwest Airlines carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of International Consolidated Airlines, Delta Air Lines and Southwest Airlines have gained more than 7%, 12% and 8%, respectively, in the last six months.

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