March 11, 2010 / 2:21 PM / 7 years ago

UPDATE 3-Canada's Transat gives gloomy outlook, shares sink

* Q1 loss C$0.37/shr vs loss C$0.90/shr last year

* Revenue falls 10 pct

* Expects to post Q2 loss, lower prices to hurt Q2x

* Shares sink as much as 31 pct (Recasts, adds details, analyst comments, updates stock movement)

By Koustav Samanta

BANGALORE, March 11 (Reuters) - Canadian holiday travel company Transat A.T. Inc TRZb.TO posted a first-quarter net loss, hurt by lower selling prices, and said it expects to post a loss in the second quarter, wiping out about a third of the stock's market value.

The company said lower selling prices will also hurt its second-quarter results. In addition, it will not fully benefit from the strength of the Canadian dollar, due to its foreign exchange hedging positions.

Transat, however, said "for the summer 2010, it is too early to make a statement on pricing trends, but reservations are superior to the previous year."

"It is still our belief that improving demand, a more rational competitive environment, and the positive impact from cost savings and a stronger Canadian dollar will lead to better results in third and fourth quarter versus last year," Versant Partners analyst Cameron Doerksen said.

In 2010, the company said it targets to expand its market position on both sides of the Atlantic, helped by a broader offering of products and destination-based services by stepping up multichannel distribution and controlling costs.

"Transat's cost structure is in great shape. Direct costs are down due to lower costs of hotel rooms and third-party airline seats are lower with the new five-year contract with Canjet," Macquarie Research analyst David Pupo said.

BMO Capital Markets analyst Claude Proulx cut his rating on the stock saying first-quarter results were disappointing, as the adjusted loss of 48 Canadian cents was wider than his estimate of a loss of 18 Canadian cents a share.

Proulx, who cut his rating on Transat's stock to "market perform" from "outperform," also said he finds the company's second-quarter outlook pessimistic.

"We are lowering our rating on Transat ... given the poor guidance, which might lead investors to stay on the sideline until there is better visibility on long-term profitability," Proulx wrote in a note to clients.

Proulx also cut his price target on the stock by C$9 to C$15.

For the first quarter ended Jan. 31, the company posted a net loss of C$13.9 million, or 37 Canadian cents a share, compared with a loss of C$29.4 million, or 90 Canadian cents a share, in the year-ago quarter.

"Our operating costs decreased significantly, partially offsetting the unfavourable impact of lower prices on our margins, in a highly competitive commercial environment," Chief Executive Officer Jean-Marc Eustache said in a statement.

Revenue fell 10 percent to C$792.6 million, partly hurt by the company's decision to reduce its capacity based upon the decreasing number of travellers in America.

Transat said its revenues from the American business units fell 11.2 percent to C$656.8 million in the quarter, while its revenues from the European business units decreased by 1.5 percent to C$135.8 million.

Shares of the company closed down $5.80, or 30 percent, at C$13.70 Thursday on the Toronto Stock Exchange. They touched a low of C$13.56 earlier. (Additional reporting by Isheeta Sanghi; Editing by Ratul Ray Chaudhuri and Gopakumar Warrier)

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