COPEL Q2 Earnings Fall on Higher Expenses, Revenues Up Y/Y - Analyst Blog

Companhia Paranaense de Energia (ELP), or COPEL reported weak bottom-line results for second-quarter 2014. Net income came in at R$248.3 million (US$111.3 million), down 1.3% year over year.

Earnings were R$0.91 per share or 41 cents per American Depository Receipt (ADR).

Revenue

COPEL's operating revenues soared 45.4% year over year to R$3,084.8 million (US$1,383.3 million).

The top-line improvement was driven by sales increase in the following categories: 17.2% in electricity sales to final customers, 240% in electricity sales to distributors, 8.4% in use of the main distribution and transmission grid, 20.9% in construction, 19.2% in telecommunications and 8.5% in distribution of piped gas. However, revenues generated from other sources declined 94.2%.

Electricity Sales

COPEL's electricity sales to final customers improved 3.2% to 6,832 Gigawatt hours (GWh) in second-quarter 2014. The rise was prompted by 4.7% increase in the Residential segment, 5.4% in Commercial, 9.4% in Rural and 3.6% in Other segment.

Electricity sales to final customers include Copel Distribuição's sales in the captive market and Copel Geração e Transmissão's sales in the free market.

Expenses/Income

COPEL recorded a 55.7% year-over-year increase in its operating costs and expenses, totaling R$2,834.9 million (US$1,271.3 million) and representing 91.9% of revenues generated in the quarter.

The company recorded steep increases of 370.1% in expenses related to the main distribution and transmission grid, 342.1% in cost of materials and supplies for power electricity and 394.6% in natural gas and supplies for the gas business.

Additionally, higher costs were reported in the following categories: 76.8% in electricity purchased for resale, 21.9% in construction costs, 8.4% in pension and healthcare plans, 3.9% in materials and supplies and 23.5% in miscellaneous costs.    

Earnings before interest, tax, depreciation and amortization (EBITDA) improved 6.4% to R$466.8 million (US$209.3 million) with an EBITDA margin of 15.1% versus 20.7% in the year-ago quarter.

Balance Sheet

Exiting second-quarter 2014, COPEL had cash and cash equivalents of R$2,063.5 million (US$938 million), up 49% from R$1,384.7 million (US$612.7 million) at the previous quarter-end.

Loans, financing and debentures rose 26.4% sequentially to R$4,745.4 million (US$2,157 million).

Cash Flow

In first-half 2014, COPEL generated net cash of R$460.9 million (US$201.3 million) from its operating activities, plummeting 52.2% from the prior-year comparable period. Capital spending on the purchase of property, plant and equipment shot up 132.4% over the year-ago period to R$299.1 million (US$130.6 million).

During the first half, the company distributed approximately R$249.8 million (US$109.1 million) as dividends and interest on equity.

Outlook

In 2014, COPEL plans to spend R$2,616.7 million as capital expenditure. Of the total amount, roughly R$1,309 million will be used for the Generation and Transmission business, R$895.9 million for the Distribution business, R$80.0 million for the Telecommunications business and R$331.8 million as investments in new businesses.

With a market capitalization of $4.3 billion, COPEL presently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the electric utility industry include ALLETE, Inc. (ALE), Avista Corp. (AVA) and Companhia Energética de Minas Gerais (CIG). All these stocks hold a Zacks Rank #2 (Buy).