Veolia Nine-Month Revenue Falls Y/Y - Analyst Blog

Veolia Environnement (VE) registered a 1.9% decline in its top line in the first nine months of 2013, primarily due to lower contribution from its Water and Enviornmental Services segments. However, a higher contribution from the Energy Services segment marginally offset the decline.

Total revenue in the first nine months of 2013 was €16.15 billion ($21.83 billion), down from €16.82 billion ($21.71 billion) in the comparable period last year.

The year-over-year decline was due to asset sale in 2012 and the divestiture of Offshore Marine Services in the U.S during the third quarter of 2013.

Segment Results

Water: Revenue from this segment in the first nine months of 2013 was €7.48 billion ($10.11 billion), declining 2.9% from €7.88 billion ($10.17 billion) in the same period last year. The decline in revenue was due to decrease in Technologies and Networks revenue and lower construction in concession contracts, partly offset by higher tariffs in France and Central Europe.

Enviornmental Services: Revenue from this segment in the first nine months of 2013 was €6.00 billion ($8.11 billion), down 5.2% from €6.33 billion ($8.17 billion) a year ago.  The drop was due to a decline in prices and volume of recycled raw material.

Energy Services:  Revenue generated in the first nine months of 2013 was €2.49 billion ($3.67 billion), increasing 0.3% from €2.48 billion ($3.20 billion) in the year-ago period.

Others: Revenue from this segment grew 36.8% to €0.17 billion ($0.23 billion) in the first nine months of 2013, driven by significant industrial contracts.

Other Highlights

The company has begun to realize cost saves. Its efficiency and convergence plan has resulted in cost savings of €109 million ($147.4 million) in the first nine months of 2013.

Cost savings did have a positive impact on the operating margin of the company. Adjusted operating income in the first nine months of 2013 increased 20.4% to €0.62 billion ($0.83 billion) from €0.52 billion ($0.67 billion) in the comparable period of 2012.

Net financial debt of the company as of Sep 30, 2013 was €9.6 billion ($12.97 billion), down 11.1% from €10.8 billion ($13.89 billion) from year-end 2012.

Guidance

Veolia Environnement has decided to sell assets worth €6 billion in 2013. The company also aims to lower its financial debt to the range of €6 billion to €7 billion excluding the impact of foreign exchange fluctuations.

Post 2013, the company expects organic revenue to increase 3% per year and operating expense to increase 5% per year.

The company has also taken the initiative to reduce costs and aims for a net cost reduction of €750 million in 2015.

Other Company Releases

California Water Service Group (CWT) announced third-quarter 2013 operating earnings of 61 cents per share, surpassing the Zacks Consensus Estimate of 52 cents by 17.3%.

American States Water Company (AWR) reported third-quarter 2013 pro forma earnings of 53 cents per share, beating the Zacks Consensus Estimate of 47 cents by 12.8%.

Middlesex Water Co. (MSEX) reported third-quarter 2013 pro forma earnings of 36 cents per share, beating the Zacks Consensus Estimate of 35 cents by 2.9%.

Our View

The company has undertaken a number of initiatives, like lowering its operating costs and outstanding debt. Veolia has already started to derive some benefits from these initiatives, but we feel it still needs to go a long way to realize its goal and share the positives with its shareholders.
Veolia Environnement currently retains a Zacks #4 Rank (Sell).

Based in France, Veolia Environnement is a provider of environmental management services to its worldwide consumers. It operates through four segments, namely, Water, Environmental Services, Energy Services and Others.