Veolia Cuts Cost, Earnings Up Y/Y - Analyst Blog

Veolia Environnement (VE) announced its financial results for the first half of 2013. The company's operating earnings per share in the first half of 2013 were €0.22 (29 cents), versus earnings of €0.04 (5 cents) reported in the first half of 2012.

Total Revenue

In the first half of 2013, total revenue was €11.07 billion ($14.53 billion) versus €11.45 billion ($14.86 billion) in the first half of 2012, reflecting a decline of 3.3%.

The softer performance was due to lower contribution from its Water and Environmental Services segments, while positive contribution from Energy Services and Other segments marginally offset the decline in revenue.

Segment Results

Water: Total revenue from this segment in the first half of 2013 was €5.00 billion ($6.56 billion) versus €5.24 billion ($6.80 billion) in the first half of 2012, down 4.6%, primarily due to a softer construction business.

Environmental Services: Total revenue from this segment in the first half of 2013 was €3.98 billion ($5.22 billion) versus €4.21 billion ($5.46 billion) in first half of 2012, down 5.3%.  

Energy Services: The segment generated total revenue in the first half of 2013 of €1.97 billion ($2.59 billion) versus €1.91 billion ($2.48 billion) in the first half of 2012, up 3.0%. The growth was attributable to higher energy prices and favorable weather condition in France driving demand.

Operational Update

Selling, general and administrative expenses (SG&A) decreased 4.9% to €1.42 billion ($1.86 billion). The marginal decline is an effect of the cost reduction initiatives and asset portfolio optimization program undertaken by the company.

Adjusted operating income in the first half of 2013 was €538.6 million ($707.2 million) versus €419.3 million ($544.1 million) in the first half of 2012. The increase was primarily due to favorable equity-accounted entities and reversal of senior executive pension provisions in Veolia Environnement SA, which had a positive impact of €40.3 million ($52.9 million) in the first half of 2012.

Finance cost during the first half of 2013 increased to €305.6 million ($401.3 million) from €296.7 million ($385 million) in the first half of in 2012.

Financial Update

Cash and cash equivalents of the company as of Jun 30, 2013, were € 3.68 billion ($4.78 billion) versus € 4.99 billion ($6.59 billion) as of Dec 31, 2012.

Net cash from operating activities in the first half of 2013 was € 116.5 million ($152.9 million) versus € 556.5 million ($733.8 million) in the first half of 2012.

Net financial debt as of Jun 30, 2013, was €10 billion ($13.07 billion), down from €10.8 billion ($14.27 billion) as on Dec 31, 2012.

Guidance

Veolia Environnement provided a combined outlook for 2012 and 2013. The company has decided to sell assets worth €6 billion, including the repayment of joint venture loans relating to divestitures. Veolia expects to bring the net financial debt level in the range of €8 billion and €9 billion.

The company also provided a business outlook beyond 2013. The company forecasts organic revenue growth of 3% per year from 2013, while adjusted operating cash flow is expected to be over 5% per annum. The company has also taken the initiative to reduce costs and aims for a gross reduction of €750 million in 2015.

Other Company Release

SJW Corp. (SJW) reported earnings of 37 cents per share in the second quarter 2013, beating the Zacks Consensus Estimate of 28 cents by 32.14%.

Connecticut Water Service Inc. (CTWS) is scheduled to release its second quarter 2013 results on Aug 8, 2013. The Zacks Consensus Estimate for the quarter is at 36 cents.

Aqua America, Inc. (WTR) is scheduled to release its second quarter 2013 results on Aug 8, 2013. The Zacks Consensus Estimate for the quarter is at 36 cents.

Our View

The company is seriously working to lower its operational costs and improve its margins. Veolia increased its cost reduction target for 2015 to €750 million from €470 million earlier.

Based in France, Veolia Environnement is a provider of environmental management services to its worldwide consumers. Veolia Environnement retains a Zacks Rank #3 (Hold).