GOL Linhas A: Earnings Preview

| About: GOL Linhas (GOL)
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GOL Linhas A (NYSE:GOL) will be reporting its third-quarter 2011 earnings on Thursday, November 10, 2011.

The current Zacks Consensus Estimate for earnings per share (NYSEARCA:EPS) is a negative 23 cents, representing an annualized loss of 197.50%.

With respect to earnings surprises over the trailing four quarters, GOL outperformed the Zacks Consensus Estimate in two quarters and underperformed in the rest. Average earnings surprise was a negative 99.84%, implying that the company underperformed the Zacks Consensus Estimate by the same magnitude over the last four quarters.

Second Quarter Highlights

GOL Linhas reported financial results for the second quarter of fiscal 2011 on August 11, 2011. Net loss in the quarter was recorded at R$358.7 million (US$225.6 million) compared with a loss of R$51.9 million (US$29.2 million) in the year-ago quarter. The loss was primarily attributable to a 2.3% decline in passenger revenue on the backdrop of a competitive Brazilian air traffic market, worsened by rising fuel prices.

GOL Linhas reported loss per share of R$1.33 (US$0.84 per ADS) in the quarter compared with the Zacks Consensus Estimate of a loss of US$0.15 per ADS.

During the second quarter, net revenue was R$1,566.3 million (US$985.1 million), down 1.5% year over year and 17.4% sequentially. The year-over-year decline reflected highly competitive fares, which increased competition in the Brazilian aviation market, pushing the company’s yield down by 13.8%.

Agreement of Estimate Revisions

In the last 30 days, one analyst increased the company’s earnings per share (EPS) estimate while two decreased theirs for the third quarter of 2011. One analyst decreased the estimate for the next quarter in the last 30 days. For fiscal 2011, one analyst decreased the estimate while for fiscal 2012, two analysts decreased the same.

Magnitude of Estimate Revisions

Estimates over the last 30 days decreased from a negative 11 cents per share to the current estimate loss of 23 cents for the third quarter of 2011. The estimate represents a year-over-year decline of 197.50%.

Estimate for fiscal 2011 dropped from a negative 16 cents to a negative 52 cents over the last 30 days while that for fiscal 2012, it showed a similar trend of change from 54 cents to 45 cents. These estimates represented a year-over-year decline of 208.33% for 2011 while a growth of 186.30% for 2012.

Our Take

GOL is likely to post decent results in the third quarter based on the recent rise in load factor with increased productivity and higher occupancy rate, which appears conducive toward growth going ahead. Moreover, the company’s initiatives to curb costs as well as its ancillary business strategies appear favorable for the stock.

GOL Linhas is one of the most profitable low-cost airlines in the world connecting the cities of Brazil as well as those in Argentina, Bolivia, Chile, Paraguay, Peru and Uruguay. It competes directly with its peers, such as Copa Holdings SA (NYSE:CPA), LAN Airlines S.A (LFL), and TAM S.A (NYSE:TAM).

We currently maintain a long-term Underperform recommendation on the stock. GOL has a Zacks #4 Rank, which translates into a short-term Sell rating (1-3 months).

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