GOL Linhas Aereas Inteligentes S.A. (GOL) reported a net income of R$23.9 million (US$13.4 million) for the first quarter of 2010, 62.1% down from R$61.4 million (US$26.4 million) in the year-ago quarter. EPS dropped to R$0.18 or 10 cents from R$0.30 or 13 cents. Reported EPADR was much below the Zacks Consensus Estimate of 19 cents. The decrease in net income is driven by exchange rate loss of R$59.0 million (US$33.04 million) versus an exchange rate income of R$86.1 million (US$37.0 million) in the same period of 2009.
During the quarter, net revenues were R$1,729.8 million (US$968.7 million), up from R$1,517.0 million (US$652.3 million) in the corresponding quarter of 2009. GOL posted an operating income of R$191.4 million (US$107.2 million) and an operating margin of 11.1%, 82.1% up from R$105.1 million and a 6.9% margin in the first quarter of 2009.
The improvement in revenue is the result of the company’s competitive advantages in relation to greater flight frequency between domestic airports, low-cost leadership, and strong indicators of punctuality, regularity, safety, and differentiated client service, as well as increased demand from the domestic and international markets.
During the quarter, operating costs and expenses (excluding depreciation) came to R$1,476.6 million (US$827.0 million), 7.4% up year over year due to a 23.5% increase in aircraft fuel and a 15.4% increase in salary, wages and benefits.
In the first quarter, GOL took delivery of five Boeing 737-800NG SFPs to replace five Boeing 737-300s and three Boeing 737-800s, which were retired during the period. The company closed the quarter with 108 operational aircraft, with an average age of 5.8 years.
As on March 31, 2010, GOL recorded a net debt of R$1,740.0 million (US$974.4 million), up from $1,692.2 million (US$981.5 million) at the end of the previous quarter. Cash position was R$1.4 billion, with cash and cash equivalents and short-term investments of R$1.5 billion, equivalent to 24.0% of annual net revenue, 5.6% up from the previous quarter.
GOL remains better positioned to capitalize on the increase in discounted air travel in Brazil and the rest of Latin America given its strong market share position and efficient operations. GOL has been delivering positive and increasing operating profit for the last six consecutive quarters. We expect the company to experience growth in the short-to-medium term, based on international agreements and continued investment in fleet renovation.
However, competitive pressures and the impact of the global financial crisis are a concern. Moreover, infrastructural constraints at the Brazilian airports force us to reiterate our Neutral recommendation on the ADR.

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