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COPEL Q3 Earnings Down Y/Y on Weak Sales & High Costs

Zacks Equity Research

Companhia Paranaense de Energia ELP or COPEL reported disappointing results for third-quarter 2015. The company’s net income declined 60.8% year over year to R$91.4 million (US$26 million).

Earnings came in at R$0.33 per share or 9 cents per American Depository Receipt (“ADR”).


COPEL’s operating revenues for the quarter totaled R$3,245.2 million (US$921.9 million), down 1.3% year over year.

The top-line weakness was triggered by sales decline in the following categories: 21.6% in electricity sales to distributors, 18.2% in construction and 33.9% in other operating revenues. However, these negatives were partially offset by a 14.7% increase in electricity sales to final customers, 9.2% in use of the main distribution and transmission grid, 27.7% in telecommunications and 62% in distribution of piped gas.

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.

As reported, the company’s electricity sales to final customers declined 1.2% year over year to 6,807 Gigawatt hours (GWh) in third-quarter 2015. The decrease was led by 5.5% fall in Residential and 0.6% decline in Industrial segment, partially offset by 1.4% increase in Commercial, 2.1% in Rural and 0.5% in Other segment.


COPEL’s operating costs increased 6.8% year over year to R$3,183.4 million (US$904.4 million). Expenses, as a percentage of revenues, were 98.1% versus 90.7% in the year-ago quarter.

The company recorded increase of 29.9% in cost of materials & supplies for power electricity, 10.4% in electricity purchased for resale and 31.3% in pension and healthcare plans. Additionally, higher costs were reported in the following categories: 29.1% in charge of the main distribution & transmission grid, 13.8% in personnel and management, 18.7% in third-party services, 15.5% in depreciation and amortization, and 66.5% and 30.7% in other costs and expenses, respectively.

However, a 17% decline was recorded in costs for natural gas and supplies for the gas business, while costs for provisions & reversals and construction costs declined 26.4% and 12.4%, respectively.

Earnings before interest, tax, depreciation and amortization (“EBITDA”) decreased 39.7% to R$299.2 million (US$84.9 million), with an EBITDA margin of 9.2%.

Balance Sheet & Cash Flow

Exiting third-quarter 2015, COPEL’s cash and cash equivalents decreased to R$831.6 million (US$202.8 million) from R$867.8 million (US$276.4 million) at prior-quarter end. Loans, financing and debentures were R$6,460.3 million (US$1,575.7 million) compared with R$6,047 million (US$1,925.8 million) in the preceding quarter.

Also, in the first nine months of 2015, COPEL generated net cash of R$836.3 million (US$265.5 million) from its operating activities, down 29.6% year over year. Capital spending on the purchase of property, plant and equipment increased 10.3% year over year to R$672.5 million (US$213.5 million).

During the period, the company distributed approximately R$300.3 million (US$95.3 million) as dividends and interest on equity.


For 2015, COPEL plans to spend R$2,476.9 million in capital expenditure. Of the total amount, roughly R$1,300.1 million will be used for the Generation and Transmission business, R$784.7 million for the Distribution business, R$107.7 million for the Telecommunications business, and R$284.4 million as investments in new businesses.

With a market capitalization of $2.2 billion, COPEL presently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the electric utility industry include Exelon Corporation EXC, Huaneng Power International, Inc. HNP and Korea Electric Power Corp. KEP. All these stocks sport a Zacks Rank #1 (Strong Buy).

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