Gol Linhas (GOL) Q3 Earnings Top on Solid Passenger Revenues

Gol Linhas Aereas Inteligentes S.A.'s GOL earnings (excluding 65 cents from non-recurring items) of 34 cents per share in the third quarter of 2019 surpassed the Zacks Consensus Estimate of 32 cents. The company reported a loss in the year-ago period. This marks the company’s 13th straight quarter of positive operating results. However, results were partly affected by 4% depreciation of the Brazilian real against the US dollar.

Meanwhile, net revenues of $936 million (R$3.71 billion) missed the Zacks Consensus Estimate of $938.4 million but increased significantly year over year owing to solid demand in the corporate segment and capacity discipline. Passenger revenues accounting for bulk (94.4%) of the top line improved 29.5% on a year-over-year basis.

Operational Statistics

Consolidated revenue passenger kilometers (RPK) — measure for revenues generated per kilometer per passenger — increased 12.8% year over year. The metric climbed 7.5% and 63.3% each on the domestic and international front.

Consolidated available seat kilometers (ASK), measuring an airline's passenger carrying capacity, rose 7.6% year over year. While domestic capacity inched up 3%, international capacity expanded 46.1%.

Furthermore, the company’s total load factor (percentage of seats filled with passengers) was 82.9% compared with 79.1% in the year-ago period. The metric improved as traffic growth outpaced capacity expansion.

While net passenger revenue per ASK augmented 20.4%, net revenue per ASK grew 19.2%. Fuel price per liter dipped 1.1%. However, cost per ASK rose 5.8% year over year due to higher depreciation, personnel and passenger costs. Besides, the metric increased 14.2% excluding fuel.

Other Metrics

Gol Linhas, carrying a Zacks Rank #3 (Hold), exited the third quarter with total liquidity (including cash and cash equivalents, financial investments, restricted cash and accounts receivable) of R$4 billion, reflecting an increase of R$1 billion from the year-ago reported figure. Additionally, long-term debt totaled R$10.7 billion at the end of the reported quarter compared with R$10.61 billion in the year-ago period. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Total operating expenses escalated 21.5% year over year to R$3.1 billion. The metric excluding fuel surged 36.7% year over year. Meanwhile, total volume of departures ascended 7.3% and the number of seats increased 7.8%.

Q4 Outlook

The company anticipates non-recurring unit costs excluding fuel to rise approximately 4-6% year over year. Meanwhile, courtesy of strong passenger demand and solid revenues, Gol Linhas estimates net revenue per ASK to climb 5-7% in the fourth quarter.

2019 Outlook

GOL Linhas anticipates net revenues of approximately R$13.7 billion compared with R$13.5 billion expected previously. Further, earnings are envisioned to be 45 cents per share. Previously, the estimate was in the range of 80-95 cents. The Zacks Consensus Estimate for the same stands at 54 cents. For fuel price, the forecast is intact at R$2.9 per liter. However, the prediction for pre-tax margin has been decreased to 7% from 10% anticipated earlier.

Capital expenditures are still anticipated at R$700 million. The effective tax rate estimate has been reduced to 20% from 22% expected previously. The company’s expected fleet size at the end of the year is anticipated to be 126 (earlier expectation: 125-127). The prediction for capacity now stands at 9% compared with 9-11% projected earlier.

For average load factor, the forecast is 81% compared with 79-81% anticipated in the past. The EBITDA margin prediction has also been revised to 29% compared with 28% expected previously. However, EBIT margin is now expected to be 17% from 18% envisioned previously.

2020 View

For 2020, net revenues are still estimated at R$15.5 billion. Earnings are now expected between $1.40 and $1.65 per share. Previously, the estimate was in the range of $1.2-$1.5. Fuel price is now projected at R$3 per liter compared with R$3.1 estimated previously. The prediction for pre-tax margin has been increased to 13% from 12% expected previously.

Capital expenditures are reiterated at R$650 million. The effective tax rate estimate has been reduced to 15% from 22% expected previously. The company’s expected fleet size at the end of the year is anticipated to be 134-139 (earlier expectation: 131-136). The prediction for capacity now stands at 7-9% compared with 6-8% projected earlier.

For average load factor, the forecast is maintained at 80-82%. The EBITDA margin prediction has been revised to 30% compared with 29% expected previously. The forecast for EBIT margin remains intact at 19%.

Upcoming Releases

Investors interested in the broader Transportation sector are awaiting third-quarter earnings reports from key players like Expeditors International of Washington, Inc EXPD, Air Lease Corporation AL and Golar LNG Limited GLNG. While Expeditors and Air Lease will announce third-quarter results on Nov 5 and Nov 7, respectively, Golar LNG will release the same on Nov 26.

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