CEMIG Q3 Earnings Fall, High Costs Offset Revenue Growth - Analyst Blog

Companhia Energetica de Minas Gerais (CIG), also known as CEMIG, reported disappointing results for third-quarter 2014. Adjusted net income came in at R$26.6 million (US$11.7 million), down 96.1% year over year.

Revenues

CEMIG generated net revenue of R$3,831.9 million (US$1,688.1 million), reflecting a year-over-year increase of 8.1%. Sales to end consumers accounted for 98% of the net revenue generated.
 
Electricity sold to CEMIG's final consumers edged down 0.7% year over year to 15,466 Megawatt hours (MWh).

Expenses/Income

Operating expenses escalated 22% year over year to R$3,420 million (US$1,506.6 million). The increase was due to higher costs related to electricity brought for resale, use of the national grid, post-retirement liabilities, personnel and managers, employees' and managers' profit shares, materials, depreciation and amortization, operational provisions and other expenses.

On the other hand, partially offsetting these were decreased costs associated with royalties for use of water resources.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) fell 56.7% year over year to R$490.4 million (US$216 million) while EBITDA margin was 12.8% versus 31.9% in the year-ago quarter.
    
Balance Sheet and Cash Flow

Exiting third-quarter 2014, CEMIG had cash and cash equivalents of R$1,327 million (US$546.1 million) as against R$1,989 million (US$904.1 million) recorded at the previous quarter-end. Loans and financings inched up 0.2% sequentially to R$2,089 million (US$859.7 million).

In the first nine months of 2014, CEMIG generated cash of R$3,249 million (US$1,412.6 million) from its operating activities, reflecting an increase of 22% year over year. Capital spent on fixed and intangible assets plummeted 75% to R$614 million (US$267 million).

CEMIG is one of the largest integrated electric utilities in Brazil, with approximately 97% of the company's installed generation capacity being hydroelectric power. With a market capitalization of $6.4 billion, CEMIG currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the electric utility industry include Black Hills Corporation (BKH), The Empire District Electric Company (EDE) and Unitil Corp. (UTL). All these stocks sport a Zacks Rank #1 (Strong Buy).

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