Earnings Preview: GOL Linhas Aereas - Analyst Blog

GOL Linhas Aereas (GOL) is slated to announce its third quarter results on November 9. The Zacks Consensus Estimate is 19 cents, a penny above the year-earlier earnings of 18 cents.

Second Quarter Highlights

GOL reported second quarter results with a net loss (excluding one-time items) of R$14.9 million (US$8.3 million) compared to a net profit of R$353.7 million (US$169.2 million) in the year-earlier quarter. Foreign exchange loss was the primary reason for the negative results.

GOL reported a foreign exchange loss of R$29.9 million (US$16.6 million) compared to a gain of R$448.4 million (US$214.5 million) in the year-ago quarter based on the 1.2% appreciation of the U.S. Dollar against the Brazilian Real, which had a direct impact on foreign-currency debt comprising 80.6% of total debt.

GOL reported a loss per share of R$0.11 (6 cents per ADS) from earnings of R$1.37 per share (76 cents per ADS). However, the Zacks Consensus Estimate was an EPS of 5 cents. One-time expenses include an expenditure of R$37 million (US$20.6 million) related to fleet replacement expense of B737-300s and B767-300/200s with 737-800NGs and 737-700NGs.

During the quarter, net revenues were R$1,590.9 million (US$883.8 million), up from R$1,394.0 million (US$667.0 million) in the corresponding quarter of 2009. The improvement in revenues is the result of the company's competitive advantages from greater flight frequency between domestic airports and low-cost leadership.

Moreover, strong indicators of punctuality, regularity, safety and differentiated client service, as well as increased demand from the domestic and international markets also pushed up revenues. 

For details, please click on the link: Dollar Hurts GOL Linhas Aereas

Agreement of Estimate Revisions

The management did not provide guidance for the third quarter and fiscal 2010, but the Zacks Consensus Estimate remains at 19 cents for the third quarter and 74 cents for fiscal 2010.

In the last seven days, there has been no movement in the analysts' estimates for fiscal 2010 and fiscal 2011, as they are waiting for the third quarter earnings release.  

Earnings Surprise

GOL has delivered a mixed earnings surprise over the past few quarters. While earnings in the second and first quarters of fiscal 2010 and the third quarter of fiscal 2009 came in below expectations, fourth quarter earnings surpassed expectations.

The average earnings surprise for the last four quarters was a positive of 11.05%, which means the company surpassed the Zacks Consensus Estimate by that measure.

Recommendation

We remain Neutral on the ADS stemming from our optimism about the continuous increase in passenger traffic and the fleet renewal program. Increase in the frequency of flights to high-demand markets and the addition of new routes are also encouraging.

However, an intense competitive environment particularly due to the merger of LAN Airlines S.A. (LFL) and TAM S.A. (TAM) will put the stock under pressure. Gyrating fuel prices is another matter of concern. Moreover, we do not expect a significant recovery in the airline industry in 2010.

Over-dependence on a few clients such as Boeing and CFM International and an increase in net debt also force us to remain on the sidelines. Thus, the ADSs retain thei short-term Sell rating, equivalent to a Zacks #4 Rank.