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LATAM Airlines (LTM) Q3 Earnings Top, Fall Y/Y on Fuel Costs

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LATAM Airlines Group S.A. (LTM - Free Report) reported mixed results in the third quarter of 2018. The company’s earnings of 9 cents per share surpassed the Zacks Consensus Estimate of 8 cents. However, the bottom line deteriorated significantly year over year. Results were hampered by rising fuel prices and depreciation of the Brazilian Real and Argentinian Peso.

Meanwhile, the earnings beat pleased investors. Consequently, shares of the company were up more than 5% at the close of business on Nov 21.

Total revenues also decreased year over year to $2,386.1 million, falling short of the Zacks Consensus Estimate of $2,752.6 million. This downside was due to a 5.3% fall in passenger revenues of $2,107.17 million. Meanwhile, cargo revenues inched up 2.5% year over year to $278.88 million.

LATAM Airlines Group S.A. Price, Consensus and EPS Surprise

 

LATAM Airlines Group S.A. Price, Consensus and EPS Surprise | LATAM Airlines Group S.A. Quote


In spite of a 32.9% spike in fuel costs (average price per gallon excluding hedge increased 27.7% year over year), operating expenses dipped 3.5% year over year to $2,317 million. The upside was owing to a 5.2% reduction in cost per available seat mile (CASK). Also, total operating expenses excluding fuel declined 14.6% year over year on account of 16.1% drop in CASK excluding fuel.

Moreover, the company’s cost-cutting initiatives have led to a 23.3% decrease in expenses on wages and benefits owing to a 3.1% decline in the average headcount. The depreciation of Brazilian Real and Argentinian Peso to the tune of 24.9% and 84.6%, respectively, also led to the decline in expenses on wages and benefits.

Liquidity

The carrier exited the third quarter with cash and cash equivalents of $1,200.39 million compared with $1,614.24 million at the end of Dec 31, 2017. The company had a total net debt of $6,398.55 million at the end of the third quarter compared with $6,277.4 million at 2017-end.

2018 Guidance Intact

The company’s outlook for the current year remains unchanged. Operating margin is anticipated between 6.5% and 8% in the period while capacity growth (ASKs) is estimated in the 4-6% range year over year.

Zacks Rank & Key Picks

LATAM Airlines carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the airline space are Air France-KLM SA (AFLYY - Free Report) , International Consolidated Airlines Group SA (ICAGY - Free Report) and Spirit Airlines, Inc. (SAVE - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of Air France-KLM and Spirit Airlines have surged more than 32% and 39%, respectively, in the past six months. While the International Consolidated Airlines stock flaunts an impressive earnings history, having outperformed the Zacks Consensus Estimate in three of the last four reported quarters, the average beat being 92.9%.

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