GOL's Upbeat Results - Analyst Blog

The first Brazilian low-fare airline, GOL Linhas Aereas (GOL) reported net income of R$110.0 million (US$62.5 million) for the third quarter of 2010 compared to R$77.9 million (US$41.4 million) in the year-earlier quarter.

The increase was driven by the significant leap in market demand and aircraft fares based on improved economic conditions. A decline in aircraft leasing costs based on the return of all the B737-300 aircraft under operational leasing was another reason.

GOL reported EPS of R$0.41 (US$0.23 per ADS), up from R$0.36 per share (US$0.18 per ADS). Reported EPADS marginally surpassed the Zacks Consensus Estimate of US$0.20.

During the quarter, net revenues were R$1,788.9 million (US$1,016.4 million), up from R$1,496.7 million (US$796.1 million) in the corresponding quarter of 2009. The improvement in revenues is the result of increased demand from the domestic and international markets, which pushed up revenues.

The company's competitive advantages due to the greater flight frequency between domestic airports and its low-cost leadership based on market improvements also helped revenue. Operating costs and expenses based on revenues dropped by 390 basis points to 89.5% from 93.4% in the third quarter of 2009.

Operating income stood at R$187.2 million (US$106.4 million) with a margin of 10.5% in comparison with $99.1 million (US$52.7 million) with a margin of 6.6% in the prior-year period. The company reported an EBITDAR of R$380.9 million (US$216.4 million) with a margin of 21.3% in comparison to R$298.7 million (US$158.9 million) and a margin of 20.0% recorded in the third quarter of 2009.

As of September 30, 2010, GOL recorded a net debt of R$1,836.2 million (US$1,073.8 million), up from R$1,681.1 million (US$939.2 million) at the end of the previous quarter. Cash position was R$2,084.8 million (US$1,219.2 million), compared with R$1,839.8 million (US$1,027.8 million) in the previous quarter.

GOL closed the quarter with a total fleet of 121 aircraft, with an average age of 6.8 years. During the quarter, the company took delivery of two Boeing 737-800NG SFPs to replace one Boeing 737-300, and two Boeing 737-800s.

GOL has started new routes and new fare categories, which also influenced the increase in passenger traffic. This is expected to continue in the short term if fuel costs do not increase significantly from current levels. Moreover, an intensely competitive environment particularly due to the merger of LAN Airlines S.A. (LFL) and TAM S.A. (TAM) will put the stock under pressure. Thus, the stock retains its short-term Sell rating, equivalent to the Zacks #4 Rank.