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Companhia Paranaense de Energia (ELP - Analyst Report), also known as COPEL, reported a 16.9% decline in its net earnings in the first quarter of 2012. Net income in the quarter settled at R$319.7 million (US$180.63 million) or R$1.17 per share (US$0.66 per ADR).

Revenue

Net operating revenues in the first quarter increased 10.9% year over year to R$2,024.6 million (US$1,143.8 million) due to higher sales volume.

Revenue improvement was witnessed in all the categories mentioned below: about 6.5% for Electricity sales to final customers; 16.5% for sales to distributors; 13.5% for use of main transmission grid; 9.2% for telecommunications revenue; 22.6% for distribution of piped gas and 43.3% for other operating revenues. However, construction revenue dipped 12.7% year over year.

Expenses/Income

During the quarter, operating costs and expenses went up 15.1% year over year to R$1,580.6 million (US$893.0 million), due primarily to a rise in expenses in almost all the categories including 10.8% in electricity purchased for resale, 11.8% in expenses related to use of main transmission grid, 22.7% in personnel and management, 26.6% in pension and healthcare, and 44.4% in natural gas and supplies for the gas business, among others.

However, higher costs in the above mentioned categories were partially offset by a 26.8% decline in material and supplies costs; 23.6% drop in raw material and supplies for electricity generation; and a 14.0% fall in construction costs.

EBITDA dipped slightly by 0.3% to R$585.4 million (US$330.7 million) with an EBITDA margin of 28.9% versus 32.2% in the year-ago quarter.

Balance Sheet

Exiting the first quarter 2012, COPEL’s cash and cash equivalents plummeted 21.7% sequentially to R$821.0 (US$451.1 million) while loans and financing increased 3% to R$2,118.8 million (US$1,164.2 million).

Cash Flow

Net cash flow from operating activities in the first quarter 2012 was R$59.0 million (US$33.3 million), down 69.8% year over year while capital spending was R$216.8 million (US$122.5 million), up 75.3% year over year.

For the fiscal year 2012, COPEL plans to spend approximately R$2,257.4 million, with roughly 47.4% on Generation and Transmission, 48.9% on Distribution and 3.7% on Telecommunications.

Companhia Paranaense de Energia is a fully integrated electric utility of Brazil engaged in the generation, transmission, and distribution of electricity to the State of Paraná. The provincial government of the State of Paraná controls about 58.6% of the shares of COPEL. The company faces stiff competition from Cia Energetica de Minas Gerais (CIG - Analyst Report) and Enersis S.A. (ENI - Snapshot Report).

We currently maintain a Neutral recommendation on the stock.

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