On February 27, TAM S.A. (TAM) reported its financial results for the fourth quarter and fiscal year 2010. Fourth quarter results were impressive as adjusted operating revenues increased by 29.1% year over year and net income rose by 7.9%.
TAM reported adjusted net income of R$150.6 million in the fourth quarter (US$89.1 million), up 7.9% year over year but down 48.8% sequentially. Adjusted earnings per share increased by 3.9% year over year but fell 50.6% sequentially to R$1.00 (59 cents per ADR). Earnings were above the Zacks Consensus estimate of 47 cents per ADR.
In the fiscal year 2010, adjusted net income plummeted 84.1% year over year to R$197.9 million (US$113.1 million) or R$1.3 per share. Earnings per ADR were 74 cents per ADR.
During the fourth quarter, adjusted net revenue was R$3,224.6 million (US$1,908.0 million), up 29.1% year over year and 11.2% sequentially. Results were also above the Zacks Consensus Estimate of $1,493.0 million.
In the fiscal year 2010, adjusted net revenue increased 16.1% year over year to R$11,338.8 million (US$6,479.3 million) and above the Zacks Consensus Estimate of $6,045.0 million. The increase was due primarily to year-over-year increases of 16.5% and 7.6% in passenger and cargo revenues resulting from higher market demand.
Passenger revenues and the overall cargo revenues in the fourth quarter reached R$2,413.7 million (US$1,428.2 million) and R$295.8 million (US$175.0 million), respectively, based on the global economic recovery.
Total operating expenses in the fourth quarter increased 25.1% year over year and 33.1% sequentially due mainly to higher fuel, personnel, depreciation and amortization and maintenance and repair expenses. As a percentage of revenue, operating expenses plummeted 3% year over year and increased 16.4% sequentially.
Adjusted EBITDAR (excluding aircraft rent) for the fourth quarter was R$507.0 million (US$300 million) with a margin of 15.7% compared with R$373.3 million (US$213.3 million) with a margin of 15.0% in the corresponding quarter of 2009.
TAM continued with its fleet development and renovation strategy and received 3 new Airbus A320 in the quarter, with a total of 151 aircraft at the end of the fourth quarter. The fleet has an average age of 6.4 years.
The company invested roughly US$3.2 billion by placing an order for 34 new aircraft (32 Airbus A320 Family and two Boeing 777-300ER) in 2010. The company anticipates exiting 2015 with 182 aircraft in operation.
Net debt at the end of the quarter increased to $7,358.9 million (US$4,354.4 million) from R$7,285.3 million (US$4,139.4 million) at the end of the previous quarter. During the quarter, cash from operating activities was R$227.0 million (US$134.3 million), down 47.7% both on a year-over-year and sequential basis.
During the fiscal year 2010, LAN and TAM have signed a MoU to merge operations and form a new company called LATAM Airlines Group S.A. (LATAM). LAN will become the parent company with a 73% stake in TAM and the shareholders of TAM will receive 0.9 shares of LATAM for each TAM share. It will be an all-stock transaction of approximately US$2.7 billion.
The transaction is subject to the approval of the regulatory agencies in Brazil, Chile and other countries where LAN has subsidiaries, and shareholders. The merger is expected to be completed by the mid of fiscal 2011.
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