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LATAM Airlines Plunges 17% in a Month: What's Pulling it Down?

Zacks Equity Research

Shares of LATAM Airlines LTM have lost 16.8% compared with its industry's 5.9% decline in the past month.



Let’s take a look into the factors that are responsible for the dismal price performance.

Last week, this Latin-American carrier posted dismal first-quarter 2019 results. The company incurred a loss of 10 cents per share against the Zacks Consensus Estimate of earnings of 10 cents. The company had reported earnings of 15 cents a year ago. Notably, the results were hurt by the devaluation of local currencies, the consequent lackluster international demand and overcapacity in international routes.

Total revenues also decreased year over year to $2,431 million, falling short of the Zacks Consensus Estimate of $2,822 million. This downside can be attributed to a 6.5% and 10.9% decline in passenger and cargo revenues, respectively.

Operating expenses dipped 0.7% year over year. However, fuel costs increased 4% owing to a 8.4% rise in fuel consumption. Excluding fuel costs, cost per available seat mile (CASK) declined 8.7% due to the company’s cost-reduction efforts. Load factor (% of seats filled by passengers) decreased 1.1 percentage points to 84.2% as consolidated traffic increase (5.2%) was outweighed by capacity expansion (6.7%).

Moreover, expenses on wages and benefits decreased 7.5% owing to a 5% decline in the average headcount. The carrier exited the first quarter with cash and cash equivalents of $1,124.33 million compared with $1,081.64 million at the end of 2018. The company, which competes with the likes of Copa Holdings CPA, GOL Linhas GOL and Azul AZUL in the Latin American aviation space, had a total net debt of $7,625.69 million at the end of the first quarter compared with $7,261.73 million at 2018 end.

While LATAM Airlines, carrying a Zacks Rank #5 (Strong Sell), expects to end 2019 with an operating fleet of 328, it still anticipates current-year operating margin between 7% and 9% in the same period. Capacity growth (ASKs) is now estimated in the 3-5% range compared with 4-6% projected earlier.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

We note that the company’s lackluster price performance was not limited to its below-par first-quarter results. LATAM Airlines also posted disappointing April traffic numbers. Load factor in the month declined 0.1 percentage points to 83.3% due to capacity overexpansion. On a year-to-date basis, capacity expanded 7%, while traffic increased 5.9%. Consequently, load factor declined 0.9 percentage points to 84%.

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