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GOL Linhas (GOL) Q2 Earnings Decline, Revenues Rise Y/Y

Zacks

Latin-American carrier, GOL Linhas Aereas Inteligentes S.A.’s GOL second-quarter 2017 earnings per share of 24 cents per share compared favorably to the Zacks Consensus Estimate of a loss of 60 cents. However, the bottom line contracted 51.02% on a year-over-year basis due to higher expenses on aircraft fuel.

Net revenue, comprising of cargo and passenger revenues, came in at $696.2 million (R$2.2 billion), up significantly year over year. While cargo revenues increased 16.7%, passenger revenues also improved 5.3%.

Operational Statistics

Total revenue passenger kilometres (RPK) – the measure of revenues generated per kilometre per passenger – grew 0.5% year over year. While international RPK deteriorated 5.2%, the same improved 1.7% on the domestic front.


Consolidated available seat kilometres (ASK) – the measure of an airline's passenger carrying capacity – declined 3% year over year. The downturn of 11.9% in international ASK and 1.8% in domestic ASK too led to the downside.

During the reported quarter, the company’s total load factor (percentage of seats filled with passengers) was 77.9% compared with 75.2% in the year-ago quarter. The metric improved as capacity contracted and traffic expanded.

Average fare at this Sao Paulo based carrier increased 6.7% while yield improved 4.8% in the quarter. Net passenger revenue per available seat kilometres (PRASK) improved 8.5% while net operating revenues per available seat kilometres (RASK) climbed 10.2%, aiding the top line. Cost per available seat kilometres (CASK), excluding fuel costs, declined 2.5% in the reported quarter.

Financials

GOL Linhas exited the quarter with cash and cash equivalents of R$ 568.71 million compared with R$562.2 million at year-end 2016. Additionally, long-term debt totaled R$5,588 million at the end of the quarter compared with R$5,543 million at year-end 2016.

Operating costs and expenses in the quarter declined 2.3% to R$2,208.6 million, despite a 6.4% increase in fuel related costs. While total volume of departures fell 5.1%, total number of seats available declined 4.1%, both on a year-over-year basis.

Outlook

This Zacks Rank #2 (Buy) company reiterated its forecast for 2017, provided in June this year. The company still expects earnings before interest and taxes (EBIT) margin – a measure of the company's earnings ability- in the band of 7% to 9%. The guidance for EBITDA margin still stands in the band of 12% to 14%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

In addition, GOL Linhas, which is projecting an average fleet size of 115, still expects capacity (available seat kilometers) to either remain flat or decline up to 2% on a year-over-year basis. With the volume of departures expected to decline in the band of 3% to 5%, total seats are still expected to reduce in the range of 3% to 5%.

Another important metric, load factor (% of seats filled by passengers) is still projected in the range of 77% to 79% in 2017. We expect GOL Linhas’s focus on capacity discipline to result in increasing yields in the near term.

Despite stiff competition from its peers like Copa Holdings S.A. CPA, LATAM Airlines Group S.A. LTM and Azul SA AZUL in the Latin American space, the company is expected to perform well in the near term, driven by its restructuring efforts.

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