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COPEL Posts Solid Q1 Earnings

Zacks Equity Research

Companhia Paranaense de Energia (ELP), or COPEL reported impressive results for first-quarter 2014. The company’s net income increased 46.3% year over year to R$583.1 million (US$247.1 million). Earnings stood at R$2.13 per share or 90 cents per American Depository Receipt (:ADR).

Revenue: COPEL generated revenues of R$3,051.1 million (US$1,292.8 million), reflecting an increase of 28.2% year over year.

The top-line improvement was driven by sales increase in the following categories: 19.6% in electricity sales to final customers, 52.9% in electricity sales to distributors, 8.8% in use of the main distribution and transmission grid, 60.0% in construction, 20.0% in telecommunications and 2.1% in distribution of piped gas. However, revenues generated from other sources declined 32.9%.

Electricity Sales: COPEL announced that electricity sales to final customers increased by 6.6% to 7,231 Gigawatt hours (GWh) in first-quarter 2014. The rise was prompted by a slight hike of 0.8% in electricity sales in the Industrial segment and an 11.5% increase in the Residential segment. Electricity sales in the Commercial segment were up 9.2% while increase of 11.8% and 6.8% were recorded in the Rural and Other segments, respectively.

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.

Expenses/Income: COPEL recorded 27.6% year-over-year increase in its operating costs and expenses, totaling R$2,401.8 million (US$1,017.7 million) and representing 78.7% of revenues generated in the quarter.

The increased costs and expenses were primarily due to higher costs in the following categories: 16.7% in electricity purchased for resale, 17.3% in pension and healthcare plans, 15.7% in materials and supplies, 405.1% in natural gas and supplies for the gas business, 212.4% in provisions and reversals and 53.1% in construction costs.

Earnings before interest, tax, depreciation and amortization (:EBITDA) increased 29.1% to R$858.6 million (US$363.8 million) with an EBITDA margin of 28.1% versus 27.9% in the year-ago quarter.

Balance Sheet: Exiting first-quarter 2014, COPEL had cash and cash equivalents of R$1,384.7 million (US$612.7 million), down 20.5% from R$1,741.6 million (US$741.1 million) at the previous quarter-end.

Loans, financing and debentures increased 6.8% sequentially to R$3,755.5 million (US$1,661.7 million).

Cash Flow: In first-quarter 2014, COPEL used cash of R$24.7 million (US$10.5 million) for its operating activities as against R$8.6 million (US$4.3 million) used in the year-ago quarter. Capital spending on the purchase of property, plant and equipment was R$193.4 million (US$81.9 million), significantly above R$10.2 million (US$5.1 million) spent in first-quarter 2013.

COPEL plans to spend R$2,616.7 million as capital expenditure in 2014. 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 to be invested in new businesses.

COPEL presently has a $4.4 billion market capitalization and carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the electric utility industry include Black Hills Corporation (BKH), NRG Energy, Inc. (NRG) and Brookfield Infrastructure Partners L.P. (BIP). All of these companies sport a Zacks Rank #1 (Strong Buy).

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