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COPEL Q3 Earnings Fall, Costs Offset Revenue Growth

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Companhia Paranaense de Energia or COPEL reported disappointing third-quarter 2014 results. Net income came in at R$233.4 million (US$102.8 million), down 14.5% year over year.  Earnings were R$0.40 per share or 18 cents per American Depository Receipt (ADR).


COPEL generated revenues of R$3,286.9 million (US$1,448 million), increasing 45.8% year over year.

The top-line improvement was driven by sales increase in the following categories: 39.5% in electricity sales to final customers, 134.8% in electricity sales to distributors, 14.5% in use of the main distribution and transmission grid, 37.3% in construction and 18.3% in telecommunications. However, these were partially offset by 15.9% and 39.8% decline in revenues generated from distribution of piped gas and other sources, respectively.

Electricity Sales

COPEL’s electricity sales to final customers improved 3.1% year over year to 5,870 Gigawatt hours (GWh) in third-quarter 2014. The rise was prompted by a 0.9% increase in the Residential segment, 4% in Industrial, 5.7% in Commercial, 2.3% in Rural and 2.1% 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.


COPEL’s operating costs and expenses soared 51.7% year over year to R$2,980.8 million (US$1,313.1 million). As a percentage of revenues, it came in at 90.7% as against 87.1% in the year-ago quarter.

The company recorded steep increases of 623.7% in cost of materials and supplies for power electricity, 335.3% in natural gas and supplies for the gas business and 664.3% in provisions and reversals.

Additionally, higher costs were reported in the following categories: 57.3% in electricity purchased for resale, 63.5% in charges of the main distribution and transmission grid, 36.3% in construction costs and 22.7% in materials and supplies.    

Earnings before interest, tax, depreciation and amortization (EBITDA) improved 7% to R$495.8 million (US$218.4 million) with an EBITDA margin of 15.1% versus 20.5% in the year-ago quarter.

Balance Sheet

Exiting third-quarter 2014, COPEL had cash and cash equivalents of R$1,790.1 million (US$736.7 million), down 3.2% from R$2,063.5 million (US$938 million) at the previous quarter-end.

Loans, financing and debentures declined 7.4% sequentially to R$4,396.4 million (US$1,809.2 million) from R$4,745.4 million (US$2,157 million) in the previous quarter.

Cash Flow

In the nine months ended Sep 2014, COPEL generated net cash of R$1,217.5 million (US$529.3 million) from its operating activities, down 1.8% from the prior-year comparable period. Capital spending on the purchase of property, plant and equipment shot up 150.1% over the year-ago period to R$639.6 million (US$278.1 million).

During the period, the company distributed approximately R$249.8 million (US$108.6 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 $3.4 billion, COPEL presently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the electric utility industry include Black Hills Corporation (BKH - Free Report) , The Empire District Electric Company and Unitil Corp. (UTL - Free Report) . All these stocks sport a Zacks Rank #1 (Strong Buy).

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