GOL Posts Wider than Expected Q2 Loss despite Revenue Growth

Zacks

GOL Linhas Aereas Inteligentes S.A. (GOL) reported second-quarter 2014 net loss per share of R$0.52 or approximately 23 cents, which compared unfavorably with the Zacks Consensus Estimate of a loss of 3 cents. The loss, however, narrowed from the year-ago loss of 69 cents per share. The quarter’s results were hurt by a decline in domestic supply, soaring jet fuel prices and depreciation of the Brazilian real against the dollar.

The company reported second-quarter net loss of R$145 million (approximately $65 million), higher than the year-ago net loss of R$233 million (approximately $112.9 million).

Revenue

Net revenue increased 19.7% year over year to R$2,381.3 million (approximately $1,068 million) and was also ahead of the Zacks Consensus Estimate of $976 million. Increased demand and load factor in addition to the company’s efforts to enhance service for its customers accounted for the year-over-year growth.

Passenger revenue stood at R$2,131.4 million ($955.9 million) while cargo revenues totaled R$249.9 million ($112.1 million).

Operational Statistics

Revenue passenger kilometers (:RPK) – implying revenue generated per kilometer per passenger – in the quarter improved 5.9% from the year-ago quarter to 8,734 million. International RPK spiked 30.2% while domestic RPK rose 3.5%.

Available Seat kilometers (:ASK) – that measures an airline's passenger carrying capacity – declined 4.6% year over year to 11,618 million. ASK in the domestic market reduced 6% against 7.4% growth in the international front.

During the reported quarter, the company’s total load factor stood at 75.2%, up 750 basis points (bps) from the year-ago quarter. Domestically, load factor moved up 700 bps while internationally, it rose 1220 bps.

Margins

Operating costs and expenses in the quarter increased 20.1% to R$2,342.5 million (approximately $1,050.6 million).

Fourth-quarter operating income (:EBIT) stood at R$37.8 million (approximately $16.9 million) compared with R$35.1 million (approximately $17million) in the year-earlier quarter.

Financials

Exiting the second quarter of 2014, GOL had cash and cash equivalents of R$2,450.4 million (approximately $1,114.2 million) against R$1,635.7 million (approximately $737.2 million) at the end of 2013. Long-term debt increased to R$4,875.3 million (approximately $2,216.8 million) from R$5,148.6 million (approximately $2,320.5 million) at the end of 2013.

Outlook

For 2014, the company expects a negative 1–3% variation in domestic capacity, while growth in international market is projected at around 8%. GOL expects Brazil’s GDP growth rate to be in the range of 1.5%–2.0% for 2014. The company expects RASK (revenue per available seat kilometer) growth of above 10% and CASK (cost of available seat kilometer) growth, excluding fuel growth, of around 10% or below. In keeping with these views, GOL expects EBIT margin of 3–6% in 2014.

Our Take

Persistent weakness in Brazilian currency, which contributed to the increase in fuel prices offsetting some of the positives of the quarter, is likely to act as a major hindrance to GOL’s 2014 growth strategies. Other risks, such as competition, a slow recovering global economy, increased aircraft maintenance costs and high debt, remain as concerns.

On the bright side, attractiveness of its services and adjustments of route network will deliver positive results for the carrier going forward. Further, GOL recently announced an exclusive strategic partnership with European giant Air France-KLM SA to expand its operations between Brazil and Europe. We believe this should contribute significantly to international revenues in the coming quarters.

GOL – which operates with industry players like Copa Holdings S.A. (CPA) – has a Zacks Rank #3 (Hold).

Other Stocks to Consider

Better-ranked stocks within this sector include Southwest Airlines Co. (LUV) and Save Airlines Inc. (SAVE). Both the stocks sport a Zacks Rank #1 (Strong Buy).

Read the Full Research Report on LUV
Read the Full Research Report on GOL
Read the Full Research Report on CPA
Read the Full Research Report on SAVE


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