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GOL Linhas Aereas Inteligentes S.A. (GOL - Analyst Report) reported fourth-quarter 2012 net loss per share of R$1.66 or a loss of approximately 81 cents, which was wider than the  Zacks Consensus Estimate of loss per share of 22 cents. The results also deteriorated from the year-ago earnings of R$0.20 (or approximately 11 cents). For 2012, the company reported loss per share of R$5.61 (approximately $2.88), deteriorating 101.7% from the year-ago loss of R$2.78 (approximately $1.55). The quarter’s results were impacted largely by a rise in fuel costs and landing fees at Brazilian airports with currency depreciation adding to the woes.

The company reported fourth-quarter net loss of R$447.1 million (approximately $217.2 million), a steep plunge from the year-ago net income of R$54.3 million ($30.3 million). For the year, net loss was R$1,512.9 million (approximately $777.78 million), 101.3% wider than the year-ago loss of R$751.5 million (approximately $451.4 million).

Revenue

Net revenue was down 5.1% year over year at R$2,119.5 million ($1,029.7 million) in the reported quarter, while net revenue for the year rose 7.5% year over year to R$8,103.6 million ($4,166.1 million).
During the quarter, the company’s total load factor was at 75.5%, up 520 basis points from the year-ago quarter. GOL’s domestic supply decreased 15.5% while supply on  international route network increased 3.2% year over year. The growth in the international supply was driven by new daily flights to Santo Domingo, Miami and Orlando, beginning Dec 2012.

Looking at the domestic demand side, GOL recorded a 9.1% year-over-year decline whereas, international demand increased 1.6% year over year.

Exiting the quarter, GOL Linhas had a total fleet of 125 Boeing (BA - Analyst Report) B737-700 and 800 NG aircrafts with an average age of 7.2 years, in addition to 19 B737-300s.

On Nov 23, 2012, GOL announced the grounding of 19 B737-300s due to discontinuation of Webjet’s operations. Till Mar 25, 2013, 3 out of 13 leased aircraft of Webjet were returned and the remaining 10 will be returned by mid 2013. The company is seeking negation for the remaining six B737-300s.

Margins

Operating costs and expenses increased 9.2% year over year to R$2,447.0 million (approximately $1,188.8 million) in the reported quarter. In 2012, operating costs and expenses were R$9,009 million (approximately $4,631.5 million), up 15.7% year over year.

Fourth-quarter operating income (EBIT) came in at a negative R$357.6 million (approximately $173.7 million) compared with a negative R$33.9 million (approximately $18.9 million) in the year-ago quarter. Operating margin was negative 16.9%, compared with negative 1.5% in fourth quarter 2011.
 
The 2012 EBIT was a negative R$905.6 million (approximately $465.6 million), wider than EBIT of negative R$708.9 million (approximately $425.8 million) in 2011. The 2012 EBIT margin was a negative margin of 8.7%, wider than a negative EBIT margin of 3.2% in 2011.

The company’s fourth-quarter adjusted EBITDA of negative R$210.1 million (approximately $102.1 million), was down from EBITDA of R$90.4 million (approximately $50.5 million) reported in fourth quarter 2011. EBITDA margin came in at a negative 0.6% compared with a positive 4.0% in the fourth quarter of 2011.

For the year, adjusted EBITDA was a negative R$386.0 million (approximately $198.4 million) compared with the year-ago EBITDA of R$151.3 million (approximately $90.9 million).  EBITDA margin was a negative 4.8% compared to a positive 2.0% in the prior year.

Balance Sheet

Exiting the fourth quarter, GOL Linhas' cash and cash equivalents decreased to R$775.5 million (approximately $376.7 million) from R$1.23 billion (approximately $686 million) in the corresponding year-ago period. Long-term debt increased to R$3.47 billion (approximately $1.69 billion) from R$3.44 billion (approximately $1.92 billion) in 2011.

Further, GOL retains its target of fleet rationalization with a future fleet plan of, 136 in 2013 and 140 in 2014.

GOL Linhas is one of the most profitable low-cost airlines in the world, operating with other industry players such as Copa Holdings SA (CPA - Snapshot Report) and LATAM Airlines S.A (LFL - Snapshot Report).

Our Take

Despite the company’s strategies of route expansion, lucrative acquisitions and collaborations with other prominent market players, we are concerned over competitive threats, international business risks, increased operating expenses along with lower demand and appreciation of the U.S. dollar against Brazilian real. These would affect GOL Linhas’ near-term prospects.

GOL has a Zacks Rank #3 (Hold).

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