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Companhia Paranaense de Energia , also known as COPEL, continued reporting its year-over-year net income decline with a fall of roughly 7.7% recorded in the third quarter of 2012. Net income came in at R$319.3 (US$159.7 million) or R$1.17 per share (US$0.59 per ADR). However, the results surpassed the Zacks Consensus Estimate of US$0.48 per ADR.


Net operating revenues in the third quarter increased 1.9% year over year to R$2,053.0 million (US$1,026.5 million).

Revenue improvement was witnessed across all the company’s business categories: Electricity sales to final customers grew about 4.1%; sales to distributors surged 1.0%; use of main transmission grid climbed 6.3%; telecommunications revenue increased 3.3%; distribution of piped gas spiked 14.6%. Other operating revenues shot up 61.9%. However, construction revenue dipped 31.5% year over year.


During the quarter, operating costs and expenses went up 3.8% year over year to settle at R$1,710.9 million (US$855.5 million). Significant increase in the following expenses contributed to the inflated operating expenses: 17.2% rise in electricity purchased for resale, 13.2% in expenses related to use of main transmission grid, 23.9% in private pension and health plans, 21.8% in natural gas and supplies for the gas business and 16.0% in material and supplies for the gas operations, among others.       

Higher costs in the above-mentioned categories were partially offset by a 2.6% decline in material and supplies costs; a 34.6% decrease in provisions and reversals; a 32.7% fall in construction costs and a 23.6% decline in other costs and operating expenses.

EBITDA plummeted 5.2% to R$477.1 million (US$238.6 million) with an EBITDA margin of 23.2% versus 25.0% in the year-ago quarter.

Balance Sheet

Exiting the third quarter 2012, COPEL’s cash and cash equivalents increased 11.2% sequentially to R$749.5 million (US$374.8 million) while loans and financing decreased 6.2% to R$1,994.7 million (US$997.4 million).

Cash Flow

In the third quarter 2012, COPEL generated R$531.8 million (US$265.9 million) of net cash flow from operating activities, while capital spending was R$220.7 million (US$110.4 million).

For the 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. Nine months ended September 30, 2012, the company completed investing roughly R$1.0 billion as capital expenditure.

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 - Free Report) and Enersis S.A. .

We currently maintain a Neutral recommendation on the stock.

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