COPEL (ELP) Recovers From Loss in Q4, Earnings Grow on Sales

Companhia Paranaense de Energia – COPEL ELP reported impressive results for the fourth quarter and full-year 2017. Its net earnings for the quarter totaled R$160.2 million ($49.3 million), marking an improvement over the net loss of R$271.1 million ($82.2 million) recorded in the year-ago quarter.

The quarter’s earnings per share were R$0.37 versus the net loss per share of R$0.77 in the year-ago quarter. The American Depository Receipt (ADR) equivalent for fourth-quarter 2017 earnings was 11 cents, while that for the year-ago quarter’s loss was 23 cents.

For 2017, the company’s net earnings grew 41.6% year over year to R$1,118.3 million ($350.6 million). On a per-share basis, earnings of R$3.78 showed an increase of 24.8% over the previous year, while its ADR equivalent was $1.18 versus 87 cents in 2016.

Revenues Improve Y/Y

In the fourth quarter, COPEL’s net operating revenues totaled R$3,910.7 million ($1,203.3 million), increasing 18.6% year over year.

The top-line improvement was primarily driven by growth of 14.4% in electricity sales to final customers, 29.2% in electricity sales to distributors, 3.3% in sales derived from the use of main distribution and transmission grid, 10.3% in revenues from telecommunications and rise in gains from sectorial financial assets and liabilities.

However, these positives were partially offset by the decline of 19.9% in construction revenues, 7.9% in sales derived from the distribution of piped gas and 34.4% in other operating revenues.

For the full year, the company’s net operating revenues grew 7% year over year to R$14,024.6 million ($4,396.4 million).

Electricity Sales Weak

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.

In the fourth quarter, COPEL’s electricity sales to final customers decreased 2% year over year to 6,124-gigawatt hours. The fall was due to the 10.9% decline in Industrial consumption segment, partially offset by growth of 3.5% in Residential, 0.3% in Commercial, 5.7% in Rural and 3% in Other segment.

Expenses Increase, Margin Falls Y/Y

COPEL’s operating costs and expenses in the fourth quarter totaled R$3,618.1 million ($1,113.3 million), increasing 6.5% year over year. As a percentage of net operating revenues, these expenses were at 92.5% versus 86.7% in the year-ago quarter.

Increase in operating costs and expenses was due to the rise of 42.4% in costs related to electricity purchased for resale, 24.4% in charge of the main distribution and transmission grid, 32.3% in materials and supplies costs, 754.4% in costs related to materials and supplies for power electricity, 0.7% in natural gas and supplies costs, 3.4% rise in depreciation and amortization and 12.7% surge in other costs and expenses.

However, the impact of higher costs and expenses was partially offset by a decline of 7.5% in personnel and management costs, 7.9% in costs related to pension and healthcare plans, 8.1% in third-party services costs, 55.6% in provision and reversals and 15.8% in construction costs.

Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) were R$665.8 million ($204.9 million), up 5.1% year over year. Adjusted EBITDA margin was 17% in the quarter versus 19.2% in the year-ago quarter.

Balance Sheet & Cash Flow

Exiting the fourth quarter, COPEL had cash and cash equivalents of R$1,040.1 million ($314.2 million), down from R$1,305.4 million ($413.1 million) at the prior-quarter end. Loans, financing and debentures increased 18.6% sequentially to R$7,413.8 million ($2,239.8 million).

In 2017, the company generated net cash of R$1,013.4 million ($317.7 million) from its operating activities, reflecting the year-over-year decline of 31.4%. Capital used for the addition of property, plant and equipment in the year decreased 6.1% year over year to R$1,205.5 million ($377.9 million).

During the year, COPEL distributed approximately R$506.4 million ($158.7 million) as dividends and interest on equity.

Outlook

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.

Market Capitalization & Key Picks

COPEL currently has roughly $2-billion market capitalization. Some major players in the industry are CenterPoint Energy, Inc. CNP, CMS Energy Corporation CMS and OGE Energy Corp. OGE. While CenterPoint Energy sports a Zacks Rank #1 (Strong), both CMS Energy and OGE Energy 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, earnings estimates for each of these stocks improved for the current year. Also, average positive earnings surprise for the last four quarters was 11.50% for CenterPoint Energy, 0.61% for CMS Energy and 5.65% for OGE Energy.

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