Earnings Preview: GOL Linhas A

GOL Linhas A ( GOL - Analyst Report ) will be reporting its fourth-quarter and fiscal 2011 earnings on Monday, March 26, 2012.

The current Zacks Consensus Estimate for earnings per share (EPS) is a meager 2 cents, representing an annualized loss of 92.61%.

With respect to earnings surprises over the trailing four quarters, GOL outperformed the Zacks Consensus Estimate in one and underperformed in the rest of the quarters. Average earnings surprise was a negative 198.32%, implying that the company underperformed the Zacks Consensus Estimate by the same magnitude over the last four quarters.

Third-Quarter 2011 Highlights

On November 10, 2011, GOL Linhas A reported financial results for the third quarter of fiscal 2011. Net loss in the quarter was R$516.5 million (US$316.9 million) compared with a net income of R$110.0 million (US$63.2million) in the year-ago quarter.

The loss was primarily attributable to the depreciation of the Brazilian currency against the US dollar, which generated a huge net expense from the foreign exchange variation as most of the company’s financial liabilities are represented in dollars.

During the third quarter, net revenue was R$1,843.7 million (US$1,131.1 million), up 3.1% year over year and 17.7% sequentially. The year-over-year increase reflected a rise of 10.4% in demand on the company’s route network, leading to a growth in load factor. In addition, ancillary revenues increased by 12.5% and accounted for approximately 11.5% of total net revenue.

The load factor on GOL’s route network reached 71.5% in 3Q11, up from 68.4% reported in 3Q10. GOL's domestic demand increased 13.5%, mainly due to the fare discounts, whereas international route network fell by 16.1% over the prior-year quarter. Supply on GOL’s total route network increased by 5.7% due to a rise in fleet productivity, occupancy rate and higher number of destinations.

Agreement of Estimate Revisions

In the last 30 days, no analyst increased or decreased the company’s earnings per share (EPS) estimates for the fourth quarter of 2011. Moreover, for both fiscal 2011 and 2012, none of the analysts increased or decreased their estimate as there was no catalyst for such change.

Magnitude of Estimate Revisions

Estimates over the last 30 days remained static at 2 cents per share for the fourth quarter of 2011. The estimate represents a year-over-year decline of 92.61%.

Estimate for fiscal 2011 also remained stationery at a negative $1.21 over the last 30 days while that for fiscal 2012, showed a similar trend remaining unchanged at a positive 39 cents. These estimates represented a year-over-year decline of 352.08% for 2011 while a growth of 132.60% for 2012.

Our Take

We are concerned regarding the upcoming results as the company continues to reel under high operational costs. Costs pertaining to the competitive aviation market, airport infrastructural crisis as well as those incurred on salaries, wages and benefits add to the woe. Besides, the risk of overt dependence on a few big suppliers and governmental intervention may exert further pressure on the stock.

GOL Linhas is the first Brazilian low-fare airline connecting the cities of Brazil as well as those in Argentina, Bolivia, Chile, Paraguay, Peru and Uruguay. It competes directly with its peers, such as Copa Holdings SA ( CPA - Snapshot Report ) , LAN Airlines S.A ( LFL - Snapshot Report ) , and TAM S.A ( TAM ) .