COPEL Q4 Net Income Up Y/Y on Lower Costs, Sales Weak

Companhia Paranaense de Energia ELP or COPEL reported impressive fourth-quarter 2015 results. The company’s net income totaled R$402.1 million (US$104.4 million), increasing 46.1% year over year. Earnings came in at R$1.45 per share or 38 cents per American Depository Receipt (“ADR”).

In 2015, COPEL’s net income was R$1,265.6 million (US$380.1 million), down 5.2% year over year. Earnings were R$4.36 per share or US$1.31 per ADR.

Revenues

In the quarter, COPEL generated operating revenues of R$3,337 million (US$866.8 million), down 25.2% year over year.

The top-line weakness was triggered by a 45.1% decline in electricity sales to distributors. This softness was partially offset by 22.3% growth in electricity sales to final customers, 21.4% in construction, 14% in use of the main distribution and transmission grid, 30% in telecommunications and 5% in distribution of piped gas.

In 2015, COPEL’s revenues totaled R$14,728.1 (US$4,422.9 million), up 5.8% year over year.

Electricity Sales

COPEL’s electricity sales to final customers include Copel Distribuicao’s sales in the captive market and Copel Geracao e Transmissao’s sales in the free market.

The company’s electricity sales to final customers declined 4.4% year over year to 6,954 Gigawatt hours (GWh) in fourth-quarter 2015. The decrease was led by 6.7% fall in Residential, 3.5% in Industrial, 4.8% in Commercial, 3.9% in Rural and 1% in Other segment.

Expenses/Income

COPEL recorded operating costs and expenses of R$2,493.8 million (US$647.7 million) in fourth-quarter 2015, down 39.6% year over year. Expenses, as a percentage of revenues, were 74.7% versus 92.5% in the year-ago quarter. The company recorded a 36.2% decline in costs related to electricity purchased for resale, 80.7% related to materials & supplies for power electricity, 70.2% in natural gas and supplies for the gas business and 16.6% in other costs and expenses.

However, the impact of lower costs and expenses was partially offset by a 10.5% increase in costs related to personnel and management, 15% in pension and healthcare plans, 2.4% in materials and supplies, 40.7% in third-party services, 3.4% in depreciation and amortization and 23.1% in construction costs.

Adjusted earnings before interest, tax, depreciation and amortization (“EBITDA”) increased 17.2% to R$547.3 million (US$142.1 million), with an EBITDA margin of 16.4%.

Balance Sheet & Cash Flow

Exiting fourth-quarter 2015, COPEL had cash and cash equivalents of R$1,480.7 million (US$373.9 million), up from R$831.6 million (US$202.8 million) at prior-quarter end. Loans, financing and debentures were R$3,768.5 (US$951.6 million) compared with R$6,460.3 million (US$1,575.7 million) in the preceding quarter.

Also, COPEL generated net cash of R$1,320.6 million (US$396.6 million) from its operating activities in 2015, up 21% year over year. Capital spending on the purchase of property, plant and equipment decreased 15.9% year over year to R$752.5 million (US$226 million).

During the period, the company distributed approximately R$307.5     million (US$92.3 million) as dividends and interest on equity.

Outlook

For 2016, COPEL plans to spend R$3,149.8 million in capital expenditure. Of the total, roughly R$1,695.1 million will be used for the Generation and Transmission business, R$570 million for the Distribution business and R$146 million for the Telecommunications business.

COPEL currently has a $2.1 billion market capitalization. Some stocks worth considering in the electric utility industry include Atlantic Power Corporation AT, RWE AG RWEOY and Avista Corp. AVA. While Atlantic Power and RWE AG sport a Zacks Rank #1 (Strong Buy), Avista carries a Zacks Rank #2 (Buy).

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