Companhia Paranaense de Energia :ELP-US: Earnings Analysis: Q2, 2017 By the Numbers : September 20, 2017

Companhia Paranaense de Energia reports financial results for the quarter ended June 30, 2017.

We analyze the earnings along side the following peers of Companhia Paranaense de Energia – CPFL Energia S.A. Sponsored ADR, Companhia Energetica de Minas Gerais SA Sponsored ADR Pfd, AES Corporation, Enel Americas S.A. Sponsored ADR, EDP-Energias de Portugal SA Sponsored ADR, Edenor SA Sponsored ADR Class B, Korea Electric Power Corporation Sponsored ADR, Gerdau S.A. Sponsored ADR Pfd and Petroleo Brasileiro SA Sponsored ADR (CPL-US, CIG-US, AES-US, ENIA-US, EDPFY-US, EDN-US, KEP-US, GGB-US and PBR-US) that have also reported for this period.


  • Summary numbers: Revenues of USD 976.09 million, Net Earnings of USD 43.08 million.
  • Gross margins narrowed from 39.29% to 22.47% compared to the same period last year, operating (EBITDA) margins now 23.40% from 37.84%.
  • Year-on-year change in operating cash flow of -20.81% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Narrowing of operating margins contributed to decline in earnings.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2017-06-30 2017-03-31 2016-12-31 2016-09-30 2016-06-30
Relevant Numbers (Quarterly)
Revenues (mil) 976.09 1048.81 1049.32 897.74 1083.17
Revenue Growth (%YOY) -9.89 30.86 22.81 1.35 -14.17
Earnings (mil) 43.08 130.53 -24.71 -26.9 291.12
Earnings Growth (%YOY) -85.2 274.97 -124.39 -212.5 227.48
Net Margin (%) 4.41 12.45 -2.36 -3 26.88
EPS 0.16 0.48 -0.09 -0.1 1.08
Return on Equity (%) 0.9 2.73 -0.52 -0.55 6.44
Return on Assets (%) 1.77 5.46 -1.06 -1.15 13.29

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Market Share Versus Profits

Revenues History
Earnings History

ELP-US’s change in revenue this period compared to the same period last year of -9.89% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that ELP-US is holding onto its market share. Also, for comparison purposes, revenues changed by -6.93% and earnings by -67.00% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

The company’s year-on-year decline in earnings was influenced by a weakening in gross margins from 39.29% to 22.47%, as well as issues with cost controls. As a result, operating margins (EBITDA margins) went from 37.84% to 23.40% in this time frame. For comparison, gross margins were 31.58% and EBITDA margins were 31.55% in the previous period.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

ELP-US’s decline in gross margins were offset by some improvements on the balance sheet. The management of working capital, for example, shows progress. The company’s working capital days are now -34.78 days from 13.81 days for the same period last year. This leads Capital Cube to conclude that the gross margin decline is not altogether bad.

Gross Margin Versus Working Capital Days

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

ELP-US’s change in operating cash flow of -20.81% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings


The company’s decline in earnings has been influenced by the following factors: (1) Decline in operating margins (EBIT margins) from 33.14% to 17.60% and (2) one-time items that contributed to a decrease in pretax margins from 38.96% to 6.67%

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

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Company Profile

Companhia Paranaense de Energia engages in the generation, transmission, distribution and sale of electricity. It operates through the following segments: Power Generation and Transmission, Power Distribution and Sales, Telecommunications, Gas, and Holding Company. The Power Generation and Transmission segment involves in the generation of electric energy from hydraulic, wind, and thermal projects, the transport and transformation of the power. The Power Distribution and Sales segment offers distribution and sale of electric energy; the operation and maintenance of the distribution infrastructure. The Telecommunications segment includes telecommunications and general communications services. The Gas segment comprises the public service of piped natural gas distribution. The Holding Company segment includes participation in other companies. The company was founded on October 26, 1954 and is headquartered in Curitiba, Brazil.

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