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COPEL (ELP) Q1 Earnings Decline Y/Y, High Expenses a Drag

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Companhia Paranaense de Energia – COPEL ELP reported weak results in the first quarter of 2018. The Brazilian utility’s net income decreased 18.6% year over year to R$339.6 ($104.5 million).

The company’s earnings per share were R$1.21, down 19% from the year-ago tally of R$1.50. The American Depository Receipt (ADR) equivalent for the reported quarter was 37 cents while earnings in the year-ago quarter were 48 cents.

Revenues Improve Y/Y

In the quarter under review, COPEL’s net operating revenues were R$3,348.7 million ($1,030.4 million), increasing 1.6% year over year.

The top-line improvement was primarily driven by growth of 16.3% in electricity sales to final customers and 23.8% in revenues from telecommunications. However, these positives were partially offset by a decline of 14.7% in electricity sales to distributors, 32.6% in sales derived from the use of main distribution and transmission grid, 9.5% in construction revenues, 3.8% in sales derived from the distribution of piped gas and 7.7% in other operating revenues.

Electricity Sales Improve Y/Y

The company sells electricity to its final customers in the captive market through Copel Distribuicao and in the free market through Copel Geracao e Transmissao.

In the first quarter, COPEL’s electricity sales to final customers increased 1.2% year over year to 6,399 gigawatt hours. The improvement was driven by 9.6% rise in Industrial and 0.3% growth in Rural consumption segments. However, this was partially offset by 2.6% fall in Residential, 3.4% in Commercial and 1% in Other consumption segments.

Margin Profile Weak on Rise in Costs and Expenses

In the quarter under review, COPEL’s operating costs and expenses increased 11.1% year over year to R$2,786.6 million ($857.4 million). It represented 83.2% of net operating revenues versus 76.1% in the year-ago quarter.

Increase in operating costs and expenses was due to the rise of 10.6% in costs related to electricity purchased for resale, 86.1% in charge related to the main distribution and transmission grid, 27.5% in personnel and management costs, 3.2% in costs related to pension and healthcare plans, 71.8% in costs related to materials and supplies for power electricity, 10.2% in third-party services costs and 17.6% in provision and reversals.

However, the impact of higher costs and expenses was partially offset by a decline of 1.9% in costs related to materials and supplies, 6% in costs for natural gas and supplies in the gas business, 3.2% in depreciation and amortization, 23.6% in construction costs, and 21.2% in other costs and expenses.

Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) were R$863.1 million ($265.6 million), inching up 0.3% year over year. Adjusted EBITDA margin was 25.8% in the quarter under review versus 26.1% in the year-ago quarter.

Balance Sheet & Cash Flow

Exiting the first quarter, COPEL’s cash and cash equivalents were R$1,697.5 million ($514.4 million), increasing 63.2% from R$1,040.1 million ($314.2 million) at the prior-quarter end. Loans, financing and debentures grew 5.5% sequentially to R$7,822.2 million ($2,370.4 million).

In the reported quarter, the company generated net cash of R$641.4 million ($197.4 million) from its operating activities, reflecting year-over-year growth of 50.1%. Capital used for the addition of property, plant and equipment surged 154.7% year over year to R$503.3 million ($154.9 million).

During the quarter under review, COPEL distributed approximately R$2 million ($0.6 million) as dividends and interest on equity.


For 2018, COPEL plans to use R$2,928.6 million in capital expenditures. Of the total, roughly R$743.6 million will be used for the Generation and Transmission business, R$790 million will be used for the Distribution business and R$340.2 million for the Telecommunications business. The rest will be utilized for improving other businesses.

Companhia Paranaense de Energia (COPEL) Price

Companhia Paranaense de Energia (COPEL) Price | Companhia Paranaense de Energia (COPEL) Quote

Market Capitalization & Key Picks

COPEL currently has roughly $1.7 billion market capitalization.

Some major players in the industry are NRG Energy, Inc. NRG, TerraForm Power, Inc. TERP and Atlantic Power Corporation AT. While NRG Energy sports a Zacks Rank #1 (Strong Buy), both TerraForm Power and Atlantic Power carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

In the last 60 days, bottom-line estimates for each of these stocks improved for the current year and the next year. Also, average positive earnings surprise for the last four quarters was 507.93% for NRG Energy, 114.71% for TerraForm Power and 7.24% for Atlantic Power.

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