LATAM Airlines Group (LFL, Financial) announced their earnings results last week on Friday. The company’s EPS was $0.07 for the first quarter 2015. This missed analysts’ predictions of $0.17. LATAM Airlines Group posted a surprising net loss in its first quarter, thanks to a weak Brazilian Real but reported improvements in operational results and margins.
Hurt by a weak regional economy, LATAM Airlines struggled to meet expectations since its inception in 2012. The reported net loss of just under $40 million in the first three months of 2014 was similar to the $41 million that it lost in the same period year over year.
On an operational basis, LATAM reported a profit of $227 million which doubled since the same period a year ago thanks to the recent drop in oil costs and cost cuts increasing margins to 8.1% from 3.5% last year.
Management talks
Quoting Gisele Escobar, director of Investor Relations for LATAM, “we are very happy with our first-quarter numbers. We think that we were able to successfully manage this difficult and complex environment. We had obviously certain external positive impact like the 40% decline in the price of fuel. With fuel at $2.09 per gallon in the first quarter that was a significant decline versus what we had in the first quarter of 2014 and generated as you saw in our P&L savings of approximately $300 million.
In addition to that, we’re also positively impacted on the cost side by the devaluation of the local currencies. For the portion of our cost that are denominated in those currencies, which are approximately 40%. So that gives us also a competitive advantage especially, when we compared ourselves to our international competitors who cost – for the most part of the U.S. dollar denominates. And then finally, we’re seeing the positive effects at our cost control initiatives which we have already been discussing with you for the past couple of quarters where we have in place, our cost control program that looks to reduce our cost per ASK on an ongoing basis over the next three years.”
Company profile
LATAM Airlines Group S.A. was founded in 1929 and is headquartered out in Santiago, Chile. LATAM Airlines Group S.A. and its subsidiaries offer passenger and cargo air transport services in Latin and South America. The airlines company provides domestic and international transport services for passengers to approximately 134 destinations in 22 countries and delivers cargo to nearly 143 destinations in 27 countries. As of December 2013, the company operated a fleet of 339 aircraft that included 323 passenger planes and 16 cargo planes.
Analysis
With sales and net income dropping, LATAM has extremely weak liquidity. The company’s current quick ratio is 0.41 which shows little ability to cover short-term cash needs. The liquidity dropped from this period one year prior despite already having weak liquidity to start with. This indicates dropping amounts of cash flow.
This quarter saw stockholders’ equity increasing by the tiny amount of 1.92% from the same quarter last year. These key measurements show the company is in a position to be hit with great financial difficulties that could develop in the near future.
Analysts are giving LATAM Airlines a SELL rating. This rating is driven by various weaknesses that will have a greater impact on the bottom line than their strengths. This could end up making it even more difficult for investors to get positive results. The company’s weaknesses can be seen in its low growth in net income, weak operating cash flow, bad historical performance of the stock and slow growth in earnings per share.
