When Will GOL Linhas Earnings Fly High?

GOL Linhas (GOL -6.67%) will release its quarterly report on Monday, and investors have sent the stock plunging in concert with dreary overall assessments of economic conditions in Latin America. But despite the challenges the airline is facing, GOL Linhas earnings should keep moving in the right direction, albeit more slowly than shareholders would prefer.

GOL Linhas has benefited greatly from the economic surge in Brazil, with its fleet of aircraft serving both passengers and cargo transport. But as the Brazilian economy has slowed recently, so too has investor optimism about the airline industry there. Let's take an early look at what's been happening with GOL Linhas over the past quarter and what we're likely to see in its quarterly report.

Stats on GOL Linhas

Source: Yahoo! Finance.

How long will investors wait for GOL Linhas earnings to go positive?
Analysts have gotten less optimistic about the prospects for GOL Linhas earnings in recent months, widening their loss expectations by almost $0.10 per share for the June quarter and more than $0.35 per share for the full 2013 year. The stock has reacted even more strongly, losing half its value since early May.

What's alarming about the plunge in GOL shares is that it came despite some high hopes. After the company's first-quarter earnings release in May, some analysts were optimistic, focusing on reduced employee costs and falling domestic capacity as supporting larger turnaround efforts. Yet traffic figures in April and May were relatively weak, with April seeing a more than 10% decline in revenue passenger miles and load factors down nearly five percentage points. May's figures were less extreme, but still showed 3% declines in revenue passenger miles and load factors unchanged from April's lower levels. On the other hand, GOL has seen passenger revenue per available seat mile rise by double-digit percentages this year, reflecting lower fuel prices and reduced capacity.

GOL has also taken steps to expand its reach. In May, it broadened its existing codeshare agreement with Delta Air Lines (DAL -0.58%), opening up flights between Brazil and U.S. cities including New York and Detroit. With Delta having bought a 3% stake in GOL two years ago, the partnership gives GOL some growth opportunities in tapping increasing travel and business activity between the U.S. and Latin America.

The big question for GOL and its peers is whether the Latin American economy will see growth reignite in the near future. LAN Airlines (LTMA.Q 1.22%) has also seen steady declines in share prices despite relative strength in its numerous home-country markets across South America and its efforts to expand internationally. By contrast, Panama-based Copa Holdings (CPA 1.74%), which also has extensive presence in the South American market, has seen its stock soar as its hub strategy has benefited from Panama's economic strength.

In the GOL Linhas earnings report, watch for any comments the airline makes about general macroeconomic conditions in Brazil and elsewhere in Latin America. With emerging-market stocks getting hammered around the world, value opportunities could arise, and GOL Linhas might be a worthy candidate if it stays in position to benefit from a rebound when it occurs.

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