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

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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).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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