Wider-than-Expected Loss at Veolia - Analyst Blog

Veolia Environnement (VE) reported a loss of €0.32 (42 cents) in 2013, wider than the Zacks Consensus Estimate of a loss of 40 cents (€0.29) and a loss of €0.15 (20 cents) incurred in 2012.

Total Revenue

In 2013, total revenue was €22.31 billion ($29.46 billion) versus €23.24 billion ($30.71 billion) in 2012, reflecting a decline of 4.0%.

The decline in revenue was primarily due to lower contributions from all the three segments, namely, Water, Environmental Services and Energy Services.

Segment Results

Water: Total revenue from this segment was €10.22 billion ($13.5 billion), down 4.4% from €10.69 billion ($14.1 billion) in 2012. The decline was attributable to a weak construction business and contractual erosion in France, partially offset by higher tariffs due to indexation in France and in Central and Eastern Europe.

Environmental Services: Total revenue from this segment was €8.07 billion ($10.65 billion), down 5.1% from €8.51 billion ($11.25 billion) in 2012. The year-over-year decline was due to a drop in recycled raw material prices and volumes, and a drop in the activity level.

Energy Services: The segment generated total revenue of €3.76 billion ($4.96 billion), down 2.5% from €3.85 billion ($5.08 billion) in 2012.

Other Segments: The segment generated total revenue of €0.26 billion ($0.34 billion), up 46.0% from €0.18 billion ($0.23 billion) in 2012. This improvement was primarily due to the acquisition of the 50% stake held by Fomento de Construcciones y Contratas (FCC) Group in Proactiva Medio Ambiente.

Highlight of the Release

Veolia's decision to acquire the 50% interest in Proactiva Medio Ambiente is in sync with its strategy to expand its footprint in the high-growth regions of South America.

The company continues to work on its asset optimization policy. Under that plan Veolia divested a few of its existing assets to create a portfolio, which will provide maximum return on investments.

Veolia received loads of contracts during 2013, In Jan 2013, the city of Rialto and its concession company Rialto Water Services (RWS) awarded Veolia Water North America a contract to manage the city's water and wastewater systems. This 30-year contract could generate estimated cumulative revenue of €226 million ($300 million).

In Dec 2013, Veolia's subsidiary, Sidem, in partnership with Hyundai Heavy Industries received an Engineering, Purchasing, Construction contract for the Az Zour North complex desalination plant in Kuwait.

Financial Update

Cash and cash equivalents as of Dec 31, 2013 were €4.27 billion ($5.87 billion) versus €4.99 billion ($6.59 billion) on Dec 31, 2012.

Net cash from operating activities in 2013 was €1.76 billion ($2.32 billion) versus €1.98 billion ($2.61 billion) in 2012.

Net financial debt as of Dec 31, 2013 declined significantly to €8.2 billion ($11.29 billion) from €10.8 billion ($14.27 billion) as on Dec 31, 2012.

Dividend

The board of directors of Veolia has plans to distribute dividends to shareholders. The board is expected to propose a dividend of €0.70 per share for 2014.

Guidance

Veolia forecasts organic revenue growth from 2013 levels while adjusted operating cash flow is expected to be over 10% per annum.

Other Company Releases

American Water Works Company Inc. (AWK) reported fourth quarter earnings per share of 47 cents, in line with the Zacks Consensus Estimate.

American States Water Co. (AWR) reported earnings of 30 cents per share in the fourth quarter of 2013, surpassing the Zacks Consensus Estimate of 19 cents by 57.9%.

California Water Service Group (CWT) reported earnings of 12 cents per share in the fourth quarter of 2013, surpassing the Zacks Consensus Estimate of 5 cents by a whopping 140%.

Our View

Veolia has completed the first phase of its transformation plan in 2013 and received some benefit out of it. The company expects to begin phase two in 2014. We expect the timely completion of the development projects to strengthen its existing position.

Veolia Environnement currently has a Zacks Rank #4 (Sell).