Grupo Aeroportuario del Sureste, S. A. B. de C. V. (NYSE:ASR) Q1 2024 Earnings Call Transcript

Grupo Aeroportuario del Sureste, S. A. B. de C. V. (NYSE:ASR) Q1 2024 Earnings Call Transcript April 23, 2024

Grupo Aeroportuario del Sureste, S. A. B. de C. V. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day, ladies and gentlemen, and welcome to ASUR’s First Quarter 2024 Results Conference Call. My name is Sherry, and I will be your operator. At this time all participants are in a listen-only mode. [Operator Instructions] As a reminder, today’s call is being recorded. Now, I would like to turn the call over to Mr. Adolfo Castro, Chief Executive Officer. Please go ahead, sir.

Adolfo Castro: Thank you Sherry. And good morning everyone. Before I begin discussing our results, let me remind you that certain statements made during this call may constitute forward-looking statements which are based on current management expectations and beliefs and are subject to several risk and uncertainties that could cause actual results to differ material, including factors that may be beyond our company’s control. As usual, additional details about our quarterly results can be found in our press release, which was issued yesterday after market close and is available on our website in the Investor Relations section. Following my presentation, I will be available for Q&A. Moving on to the review of ASUR’s operational and financial performance for the quarter.

As usual, all comparison discussed will be year-on-year unless specified otherwise. We saw record high passenger traffic in the quarter at 18.6 million travelers up 4% year-on-year. [Indiscernible] performance was mainly driven by increases of 4% in Mexico, 12% in Puerto Rico, which more than upset the low single-digit decline in Colombia. By region, Puerto Rico, again, stood at the region with the strongest traffic growth, with traffic up nearly 12% driven by a double-digit increases in both domestic and international traffic. Traffic in Mexico was up nearly 4% as high single-digit growth in international and passenger driven mainly by traffic to and from the United States and Canada more than offset the low single-digit decline in domestic travel.

In addition to the impact from the initial effects of the Pratt & Whitney engine problems we have experienced in the last quarters domestic traffic was also affected by reduction in air traffic movements at Mexico City Airport, starting January 8th this year. Recall this airport accounted for 45% of tourist domestic traffic in 2023 and we expect this to continue negatively impacting domestic traffic this year. Lastly, in Colombia, traffic had started to recover with year-over-year decline small [Indiscernible]. Down only 2% in the quarter driven by [Indiscernible] account, domestic traffic following the suspension of two local airlines in February of last year that accounted 20% of our traffic in Colombia in 2022 and 19% increasing international travel.

We expect the recovery in traffic in Colombia to continue through the remaining of the year as Avianca and Latam continue to recover some of the lost routes, with March already posting a 9% growth in total traffic in Colombia. Now turning to the P&L, as a reminder, all reference to revenues and costs exclude construction and cost of revenues. Total revenues increased 14% to just over MXN 7 billion in the first quarter. Mexico and Colombia stood out with growth in the mid-teens, while Puerto Rico delivered low single-digit revenue growth impacted by stronger peso despite the double-digit traffic growth. Mexico, which accounted for 76% of total revenues, posted a 16% increase in its top line. This was mainly explained by growth in aeronautical services in the mid-20s, while non-aeronautical revenues increased below single digit.

Revenues in Puerto Rico, which accounted for 14% of the total, increased nearly 2% at 10% growth in non-aeronautical revenues, was partially offset by a 5% reduction in aeronautical revenues, reflecting the strong peso. Lastly, Colombia, which represented 10% of the revenues, posted a mid-teen increase in the top line, reflecting a good performance in both aeronautical and non-aeronautical revenues, which benefited from the international traffic growth and the strong Colombian peso. Executing our strategy of expanding our commercial offering over the past 12 months, we opened 17 new commercial spaces in Mexico, 6 in Puerto Rico, 22 in Colombia. Commercial revenues were up nearly 5%, slightly above passenger traffic growth, mainly driven by increases of 10% in Mexico, while Puerto Rico and Colombia posted increases of 10% and 14% respectively.

On a per passenger basis, commercial revenues increased 2% year-on-year to nearly MXN 125. This performance was mainly driven by growth in the high teens in Colombia, again reflecting a strong FX, which more than offset low single digits in Mexico and Puerto Rico. On the cost front, consolidated expenses increased nearly by 14%, generally in line with revenue growth in the quarter. This was mainly driven by Mexico, which reported a higher concession fee due to increases by 80% established by the Mexican government and 20% increase in minimum wages, both effective January 1st, partially offset by the 50% reduction in annual assistance fees. Consolidated EVA increased 13% year-on-year to MXN 5.1 billion in the quarter, while the adjusted dividend margin, which excludes construction, was MXN 71.4 compared with MXN 71.9 in the year ago quarter.

All regions contributed to EBITDA growth. Mexico remains the main driver of profitability, with EBITDA increasing 15%, followed by Colombia with an increase of nearly 11% and Puerto Rico just over 1%. Moving on to the balance sheet, we closed the quarter with a strong cash and cash equivalents position of nearly MSN 17 billion, up 21% from the same quarter last year. Total debt declined 4% from the year end 2023, reflecting the position of the Mexican and Colombian pesos and the payment of principal amounts of outstanding debt in Mexico. In turn, the leverage ratio was negative 0.3 times. Tomorrow, April 24th, the annual shareholders meeting is being held, for which we have proposed the distribution of an ordinary cash dividend of MXN 10 or MXN 90.6 a share payable in May and an extraordinary cash dividend of MXN 10 payable this June.

Lastly, last week we published our 2023 sustainability report, the third year report and the secular UNICEF [ph] and encourage you to read them, all of which can be found on our website. Wrapping up, first quarter 2024 delivered solid results, even as we faced the ongoing issues with the Pratt & Whitney engines and the capacity reduction at Mexico City Airport. Our good performance reflects increased traffic through our airports, along with improved passenger experience we are delivering. These trends bode well for the remaining of the year. We are committed to report our growth potential and enhancing the passenger experience through the investment in capacity in our commercial offerings. Importantly, our financial position is healthy and our capital allocation priorities are balanced between investing for growth and returning cash to shareholders.

This ends my prepared remarks. Sherry, please open the floor for questions.

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Q&A Session

Operator: Thank you. [Operator Instructions] Our first question is from Alejandro Fuchs with ITAU. Please proceed.

Alejandro Fuchs: Yes. Hello, Adolfo. Thank you for the call and for taking the questions and congratulations on the results. Two quick questions from my end. Firstly, on Mexico, I was a little bit surprised to see administrative costs and cost of service increasing 2% and 10%. Can you walk us through some of the initiatives that explain and the companies taking this cost control that you guys are having? That’s the first one. And then the second one is very quickly on Punta Cana. There was no mention in the release about the current situation with the government of the Dominican Republic. I wanted to know if you can give us a brief update of where we are or any color that is appreciated. Thank you.

Adolfo Castro: Thank you, Alejandro. Well, in terms of the cost control, the most important thing was the reduction of the 50% strategic TANF fee. That is basically offsetting the increase in the concession fee we saw for the quarter. In terms of other costs, of course, as you are mentioning administrative costs, just 2%, this has to do mainly with some efforts we have done in terms of the insurance costs and the other negative effect was the 20% increase in minimum wage that affects basically security and cleaning. That’s what I can say for the moment. In the case of the Dominican Republic, we do not see any updates. So the last update was the decree issued by the President on January 5th, cancelling the previous decree issued by the previous President that approved the construction of the airport. We have presented our legal procedures and those are ongoing. And once we know something from them, we will let you know.

Alejandro Fuchs: Thank you.

Adolfo Castro: You’re welcome.

Operator: Our next question is from Rodolfo Ramos with Bradesco BBI. Please proceed.

Rodolfo Ramos: Thank you. Good morning, Adolfo. Two questions on my side. Elaborating a bit on your comment about the headwinds that you’re seeing in Mexico City with the slot reductions there, I mean, how viable do you think it is for Felipe Ángeles and even Toluca which we have seen picking up to absorb and develop some of the traffic? I personally haven’t had a good experience flying in and out of Felipe Ángeles but would like to get your thoughts on how these metropolitan airports might help you out there. And I have a second question on that.

Adolfo Castro: Okay. In the case of Mexico City Airport, as I have said in the initial remarks, there was a restriction in capacity. So there was a reduction from 52 to 43 air traffic movements per hour. That’s a 70% decrease in terms of capacity. Basically, this reduction has been applied to domestic carriers, not to international. And I can say for the quarter, Mexico City Airport has lost more or less compared with last year almost a million passengers. In terms of Santa Lucia, I would say that not all the passengers that are not able to fly from Mexico City due to the lack of operations are willing to go to Santa Lucia. And in that sense, the system is losing a lot of passengers. In terms of Toluca, Toluca is basically the same as it was last year. So Toluca partly has been kept in terms of no more frequencies or no more operations coming from the government.

Rodolfo Ramos: Thank you. And my second question was on your CapEx program. I mean, as you embark on this historic CapEx program, do you expect any disruptions to your commercial revenues per passenger as you roll out some of these projects? What could be the impact in between, if any?

Adolfo Castro: I don’t see any disruption in terms of the commercial revenues because of the construction or because of expansions. In terms of the CapEx, basically today we are preparing the projects in order to make the bidding process to find the contractor. So that is why you are seeing a very small amount during the first quarter. But I don’t see any disruption. The two or the three main expansions we will have are those related to Terminal 4, the expansion and reconstruction of Terminal 1 and expansion of the terminal in Oaxaca. And all of them are outside the operating area. So we will be able to construct without affecting the operation of the airport.

Rodolfo Ramos: Great. Thank you.

Operator: Our next question is from Guilherme Mendes with JPMorgan. Please proceed.

Guilherme Mendes: Hi Adolfo. Good morning. Thanks for taking my question. First question is regarding the MDP tariffs. I recall on the last conference call you mentioned about starting the MDP tariff increase in April. I was just wondering if you were able to do so and how you are tracking on this price increase. And the second question, if you could please comment about the traffic outlook and especially think about the breakdown between international passengers and domestic. Thank you.

Adolfo Castro: Okay. In the case of the MDP, as you know, there was an adjustment approved by the government at the end of last year. It was December 13 when we disclosed that. We immediately started our internal procedures to adjust our increasing rates, so the rates of the products. And those are going to be adjusted as from the 1st of April this year. So the first quarter does not affect any increasing tariffs and increasing tariffs so far. In terms of the traffic outlook, well, you know the threat and weakness situation and the restriction of Mexico City will impact in a significant way the domestic traffic. Probably you can conceive a small decrease by the year in the domestic traffic. We are hoping to be supported by the international traffic as it has been for the first quarter basically with the U.S. and Canada.