Azul (AZUL) Q3 Earnings Surpass Estimates, Increase Y/Y

Azul’s AZUL third-quarter 2019 earnings per ADS (excluding $1.83 from non-recurring items) of 92 cents beat the Zacks Consensus Estimate of 61 cents. Moreover, the bottom line compared favorably with the year-ago figure of 25 cents. Results were aided by higher passenger revenues on solid demand for air travel.

Additionally, operating revenues in the quarter increased in double digits on a year-over-year basis to $764.6 million owing to the company’s cost-control initiatives. However, the top line fell short of the Zacks Consensus Estimate of $790.7 million. Meanwhile, passenger revenues, accounting for bulk (95.3%) of the top line, rose 24.9% year over year. Also, cargo revenues surged 42% in the reported quarter, mainly on e-commerce growth.

AZUL SA Price, Consensus and EPS Surprise


AZUL SA Price, Consensus and EPS Surprise

AZUL SA price-consensus-eps-surprise-chart | AZUL SA Quote

Operational Statistics

Consolidated revenue passenger kilometers (RPK), measuring revenues generated per kilometer per passenger, increased 27.1% year over year. The metric was up 30.7% and 17% on the domestic front and internationally, respectively.

Consolidated available seat kilometers (ASK), measuring an airline's passenger carrying capacity, grew 26.1% year over year. While domestic capacity expanded 29.3%, international capacity was up 16.9%.

Additionally, consolidated load factor (percentage of seats filled with passengers) was 84.3% in the third quarter compared with 83.7% a year ago. This key metric improved as traffic growth outpaced capacity expansion.

Azul’s fleet modernization efforts are an added positive. During the quarter under review, the company took delivery of its first Embraer E2 jet, which is highly fuel-efficient. The carrier also added five planes to its fleet in the period. Further, Azul expects 12 new planes in its fleet during the December quarter.

Azul exited the third quarter with an operating fleet size of 133 jets including 33 next-generation jets (representing 45% of total capacity in the third quarter). The average age of the fleet is 6 years. Contractual fleet size was 153 (19 under finance leases and 134 under operating leases).

Average fares at Azul, which competes with Copa Holdings CPA, GOL Linhas GOL and LATAM Airlines LTM in the Latin-American aviation space, increased 3.1% in the quarter under review. However, total revenues per ASK and passenger revenues per ASK slid 0.5% and 1%, respectively, year over year. Meanwhile, cost per ASK dipped 1.5% as the company added more fuel-efficient planes to its fleet apart from pursuing a cost-reduction strategy. Moreover, fuel price per liter decreased 7.8% in the September quarter. But CASM excluding fuel climbed 5.1% due to a 30.7% rise in salaries, wages and benefits.

Azul, carrying a Zacks Rank #3 (Hold), exited the third quarter with total liquidity (cash, cash equivalents, short-term and long-term investments plus receivables) of R$4,367.4 million, reflecting an increase of 6.1% year over year. However, total debt increased 17.5% to R$13,280.6 million. Azul generated free cash flow of R$187 million during the September quarter. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

2019 Outlook

The company now expects 2019 consolidated ASK to expand 20% from the 2018-level (earlier outlook was in the 20-22% range). Cost per ASK (excluding non-recurrent items) is anticipated to either slip .5% or improve up to 1.5% (earlier guidance was either flat or an increase up to 2%). Operating margin is now projected at 18% (past prediction was a rise in the 18-20% band).


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