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Companhia Paranaense de Energia (ELP - Analyst Report), also known as COPEL, reported a 28.2% decline in its net earnings in the second quarter of 2012. Net income in the quarter came in at R$184.9 million (US$94.3 million). COPEL posted an EPS of R$1.84 per share (US$94 cents per ADR) in the second quarter of 2012.


Net operating revenues in the second quarter increased 10.3% year over year to R$2,031.5 million (US$1,036.5 million).

Revenue improvement was witnessed across all the company’s business categories: Electricity sales to final customers grew about 4.5%; sales to distributors surged 34.7%; use of main transmission grid climbed 3.6%; telecommunications revenue increased 6.1%; distribution of piped gas spiked 24.0%. Other operating revenues shot up 97%. However, construction revenue dipped 9.5% year over year.


During the quarter, operating costs and expenses went up 18.1% year over year to R$1,788.1 million (US$912.3 million), primarily due to a rise in expenses in some categories including 40.3% in electricity purchased for resale, 30.3% in expenses related to use of main transmission grid, 21.5% in personnel and management, 24.3% in pension and healthcare, and 52.6% in natural gas and supplies for the gas business, among others.

However, higher costs in the above-mentioned categories were partially offset by a 0.4% decline in material and supplies costs; a 16.4% drop in raw material and supplies for electricity generation; a 52.5% decrease in provisions and reversals and a 9.0% fall in construction costs.

EBITDA declined 18.5% to R$378.3 million (US$193.0 million) with an EBITDA margin of 18.6% versus 25.2% in the year-ago quarter.

Balance Sheet

Exiting the second quarter 2012, COPEL’s cash and cash equivalents plummeted 17.9% sequentially to R$673.7 (US$323.9 million) while loans and financing inched up 0.4% to R$2,127.4 million (US$1,022.8 million).

Cash Flow

In the first half of 2012, COPEL generated R$437.7 million (US$223.3 million) of net cash flow from operating activities, while capital spending was R$442.2 million (US$225.6 million).

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. Our Neutral recommendation is supported by a Zacks #3 Rank, implying a short-term Hold rating.

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