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Companhia Energetica (CIG) Incurs Loss in Q3 on High Costs

Zacks Equity Research

Companhia Energetica de Minas Gerais CIG, also known as CEMIG, reported a loss of R$84 million ($26.6 million) in third-quarter 2017. This compares unfavorably with the year-ago quarter’s net income of R$434 million ($133.5 million).

The results suffered from rise in operating expenses and equity method losses in non-consolidated investees, more than offsetting revenue growth in the quarter.

Revenues Grow Y/Y

The quarter’s net revenues were R$5,135.8 million ($1,625.3 million), reflecting an increase of 4.9% from the year-ago quarter.

The company sold 14,046 Gigawatt hours  of electricity in the quarter, increasing 1.5% year over year. Units solid to residential customers grew 2.8% while that to commercial and rural customers increased 16.6% and 0.1%, respectively. Electricity supplied for public lighting grew 4.6% and that for public services jumped 6.2%. Own consumption of electricity increased 4.3% and wholesale supply grew 14%.

High Operating Expenses Hurt Margin

CEMIG’s margin profile weakened in the third quarter as the gain from revenue growth was more-than-offset by rise in operating expenses. As noted, operating expenses in the quarter soared 31.1% year over year to R$5,160.4 million ($1,633 million). The increase was largely due to 13.8% rise in post-retirement obligations, 16.3% in outsourced services, 35.6% electricity purchased for resale, 79.6% in charges for use of the national grid and 55.1% in gas bought for resale. Also, operating expenses represented 100.5% of net revenues versus 80.4% in the year-ago quarter.

Earnings before interest, taxes, depreciation and amortization (EBITDA) decreased 91.6% year over year to R$100.6 million ($31.8 million). The quarter’s EBITDA margin of 2% was way below 24.4% in the year-ago quarter.

Balance Sheet and Cash Flow

Exiting the third quarter, CEMIG had cash and cash equivalents of R$582 million ($184.2 million), down from R$946 million ($286.7 million) at prior-quarter end. Loans and financings decreased 5.9% sequentially to R$8,856 million ($2,802.5 million).

In the first nine months of 2017, the company generated net cash of R$2,143 million ($676 million) from its operating activities, growing substantially from R$229 million ($64.5 million) generated in the year-ago period. Capital spent on fixed and intangible assets decreased 7% to R$783 million ($247 million).

During the period, the company paid approximately R$269 million ($84.9 million) as interest on equity and dividends.

Comp En De Mn Cemig ADS Price and Consensus

Comp En De Mn Cemig ADS Price and Consensus | Comp En De Mn Cemig ADS Quote

Zacks Rank & Stocks to Consider

With a market capitalization of $2.6 billion, CEMIG currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the industry include Atlantic Power Corporation AT, DTE Energy Company DTE and NiSource, Inc. NI. All these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Atlantic Power’s bottom-line estimates for 2017 and 2018 improved in the last 60 days. Also, it pulled off an average positive earnings surprise of 29.21% in the last four quarters.

DTE Energy’s performance was better than expected in two of the last four quarters. Average earnings surprise was a positive 3.81%. Its earnings estimates for 2017 and 2018 improved in the last 60 days.

NiSource’s earnings estimates for 2017 remained stable while that for 2018 improved in the last 60 days. The estimates represent year-over-year growth of 10.5% for 2017 and 7.4% for 2018.

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