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Azul (AZUL) Q4 Earnings & Revenues Miss Estimates, Down Y/Y

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Azul S.A (AZUL - Free Report) reported lackluster results in the fourth quarter of 2018 with lower-than-expected earnings per ADS as well as revenues.

The Latin American carrier’s fourth-quarter 2018 earnings per ADS of 31 cents fell short of the Zacks Consensus Estimate by 18 cents. Moreover, the bottom line plunged on a year-over-year basis. This downturn was due to high fuel costs and devaluation of the Brazilian Real. Notably, fuel price per liter surged 37.2% while the Brazilian Real depreciated 17.3% year over year.

Operating revenues in the reported quarter were $651 million (R$2,480.4 million), which missed the Zacks Consensus Estimate of $692 million. The top line also decreased on a year-over-year basis.  However, passenger revenues, contributing 94.4% to the top line, rose 13.3% on a year-over-year basis. This upside can be attributed to solid demand for air travel among other factors.

Consolidated revenue passenger kilometers (RPK) — measuring revenues generated per kilometer per passenger — increased 14.5% year over year. The metric rallied 17.3% and 13.6% on international and domestic fronts, respectively.

Consolidated available seat kilometers (ASK) — measuring an airline's passenger carrying capacity — grew 14.1% year over year. While domestic capacity rose 12.8%, international capacity expanded 18.9%.

During the quarter under consideration, consolidated load factor (percentage of seats filled with passengers) was 83% compared with 82.7% in the year-ago quarter. This key metric improved as traffic growth outweighed capacity expansion.

Average fares at Azul, competing with Copa Holdings (CPA - Free Report) , GOL Linhas (GOL - Free Report) and LATAM Airlines (LTM - Free Report) in the Latin American aviation space, rose 4.9% in the quarter under review. Passenger revenues per ASK and total revenues per ASK dipped 0.7% and 0.6%, respectively, year over year, mainly due to the rise in international capacity. Cost per ASK inched up 1.9% on the back of rising fuel costs and an unfavorable currency fluctuation. This metric excluding fuel declined 8.1%.

Azul, carrying a Zacks Rank #2 (Buy), exited the fourth quarter with total liquidity (cash, cash equivalents, short-term and long-term investments plus receivables) of R$4,043.4 million, reflecting an increase of 13.7% from the tally in fourth-quarter 2017. Additionally, long-term debt totaled R$3,114 million, representing a rise of 6% year over year. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

2019 Outlook

Consolidated capacity is expected to expand between 18% and 20% year over year and domestic capacity is estimated to grow in the 16-18% range. Also, international capacity is forecast to increase between 20% and 25%.

Further, operating margin is anticipated to rise between 18% and 20%. Cost per ASK is too projected to slip between 1% and 3%.

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