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

Azul S.A AZUL 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, GOL Linhas GOL and LATAM Airlines LTM 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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