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Azul (AZUL) Q1 Earnings Beat, Fall Y/Y on Currency Headwind

Zacks Equity Research

Azul S.A.’s AZUL first-quarter 2019 earnings of 49 cents beat the Zacks Consensus Estimate of 43 cents. However, the bottom line declined 14% year over year. Results were impacted by 16.3% devaluation of the Brazilian real.

Operating revenues in the quarter were $686.8 million, below the Zacks Consensus Estimate of $694.1 million. However, the top line improved year over year, mainly on the back of high passenger revenues.

Passenger revenues, accounting for bulk (95.8%) of the top line, rose 15.3% 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 price-consensus-eps-surprise-chart | AZUL SA Quote

Operational Statistics

Consolidated revenue passenger kilometers (RPK) — measuring revenues generated per kilometer per passenger — increased 15.6% year over year. The metric was up 19.1% and 5.5% on the domestic and international fronts, respectively.

Consolidated, available seat kilometers (ASK) —measuring an airline's passenger carrying capacity — grew 16% year over year. While domestic capacity expanded 17.6%, international capacity was up 11.1%.
During the quarter under consideration, consolidated load factor (percentage of seats filled with passengers) was 81.9% compared with 82.2% in the year-ago period. This key metric deteriorated as traffic growth was outpaced by capacity expansion.

Azul’s fleet modernization efforts are encouraging. During the reported quarter, the company took delivery of five A320neos and removed four E-jets from its fleet, ending the period with 24 next-generation aircraft. With the addition of fuel-efficient aircraft in its fleet, there should be a substantial reduction in total unit costs. Evidently, the first quarter witnessed a 2.4% decrease in CASK controlling for fuel, currency and the return of the payroll tax with improved efficiency.

Average fares at Azul, which competes with Copa Holdings CPA, GOL Linhas GOL and LATAM Airlines LTM in the Latin American aviation space, inched up 1.6% in the quarter under review. While Passenger revenues per ASK dipped 0.6%, total revenues per ASK were flat year over year. Cost per ASK rose 4.6% due to 16.3% depreciation in the Brazilian real and other factors. This metric excluding fuel ascended 4.8%.

Azul, carrying a Zacks Rank #3 (Hold), exited the first quarter with total liquidity (cash, cash equivalents, short-term and long-term investments plus receivables) of R$3,984.3 million, reflecting an increase of 15.7% from the tally in first-quarter 2018. Additionally, long-term debt totaled R$10,758 million, having escalated 24.4% year over year. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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