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Azul's (AZUL) Q2 Loss Narrower Than Expected, '18 View Dim

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Azul's (AZUL) Q2 Loss Narrower Than Expected, '18 View Dim

Azul's (AZUL) Q2 results benefit from high passenger revenues on account of healthy travel demand. However, the carrier slashes its 2018 outlook due to rising fuel costs and currency fluctuations.

Azul S.A. AZUL incurred a loss (on an adjusted basis) of 11 cents in second-quarter 2018, narrower than the Zacks Consensus Estimate of a loss of 15 cents. Results were however, impacted by high fuel costs, devaluation of the Brazilian Real as well as the truckers’ strike. Notably, fuel prices spiked 20.2% while the Brazilian Real depreciated 12.2% year over year. Meanwhile, the strike affected results to the tune of R$57 million in the reported quarter.

Operating revenues in the quarter were $562.4 million, below the Zacks Consensus Estimate of $585.8 million. However, the top line improved year over year, mainly owing to high passenger revenues.

Passenger revenues, accounting for bulk (94.6%) of the top line, jumped 19.9% on a year-over-year basis, driven by solid demand for air travel among other factors.

AZUL SA Price, Consensus and EPS Surprise

 

AZUL SA Price, Consensus and EPS Surprise | AZUL SA Quote


Operational Statistics

Consolidated revenue passenger kilometers (RPK) — measuring revenues generated per kilometer per passenger — increased 17.4% year over year. The metric soared 66% and 5.6% respectively on international and domestic fronts.

Consolidated available seat kilometers (ASK) —measuring an airline's passenger carrying capacity — grew 18.6% year over year. While domestic capacity rose 7%, international capacity expanded a massive 73.1%.

During the quarter under consideration, load factor (percentage of seats filled with passengers) was 80.1% compared with 80.9% in the year-ago period. This key metric deteriorated as capacity expansion outweighed traffic growth.

Average fares increased 15.5% in the quarter under review. Net passenger revenue per ASK inched up 1.1% while total revenue per ASK climbed 1.6% year over year. Unit revenues were affected by the truckers’ strike in Brazil this May. Cost per ASK was up 3.9% on the back of rising fuel costs and an unfavorable currency fluctuation. The metric excluding fuel  nudged up 0.3%.

Financials

Azul exited the second quarter with total liquidity (cash, cash equivalents, short-term and long-term investments and receivables) of R$3,841.2 million, reflecting an increase of 11.6% from the previous quarter’s tally. Additionally, long-term debt totaled R$3,292 million, up 17.3%, sequentially.

Total operating expenses in the concerned quarter surged 37.5% to R$2,225.4 million. Meanwhile, total volume of departures rose 1.3%.

Bearish 2018 Outlook

With rising fuel prices and depreciation of the Brazilian real against the U.S. dollar, the company has lowered its capacity forecast for the year. It now anticipates the same to rise between 16% and 18% compared with 17-20%, expected earlier. Simultaneously, the carrier has trimmed its guidance for departures and operating margin. Azul now projects departures in the band of 2-3%, below the prior projection  of 3-4%. Also, operating margin is anticipated to be between 9 and 11%. Past outlook had called for the metric to lie between 11% and 13%. Further, unit costs are now predicted to decline between 1% and 3% in 2018. Former estimate was pegged at a fall of 2-4%.

Zacks Rank & Key Picks

Azul has a Zacks Rank #4 (Sell).

Some better-raked stocks in the broader Transportation sector are SkyWest, Inc. SKYW, GATX Corporation GATX and Trinity Industries, Inc. TRN. While GATX holds a Zacks Rank #2 (Buy), SkyWest and Trinity sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

Shares of SkyWest, GATX and Trinity have surged more than 64%, 36% and 33%, respectively, in a year.

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