Companhia Paranaense de Energia :ELP-US: Earnings Analysis: Q4, 2016 By the Numbers : April 5, 2017

Companhia Paranaense de Energia reports financial results for the quarter ended December 31, 2016.

Highlights

  • Summary numbers: Revenues of USD 1,049.32 million, Net Earnings of USD -24.71 million.
  • Gross margins narrowed from 22.12% to 8.36% compared to the same period last year, operating (EBITDA) margins now 5.55% from 19.69%.
  • Change in operating cash flow of -54.72% compared to same period last year is about the same as 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:

2016-12-31 2016-09-30 2016-06-30 2016-03-31 2015-12-31
Relevant Numbers (Quarterly)
Revenues (mil) 1049.32 897.74 1083.17 801.45 854.41
Revenue Growth (%YOY) 22.81 1.35 -14.17 -45.18 -50.99
Earnings (mil) -24.71 -26.9 291.12 34.81 101.35
Earnings Growth (%YOY) -124.39 -212.5 227.48 -76.75 9.34
Net Margin (%) -2.36 -3 26.88 4.34 11.86
EPS -0.09 -0.1 1.08 0.13 0.37
Return on Equity (%) -2.09 -2.22 25.74 3.55 11.16
Return on Assets (%) -1.06 -1.15 13.29 1.79 5.61

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Market Share Versus Profits

Revenues History
Earnings History

Compared to the same period last year, ELP-US‘s change in revenue was close to the amount of its change in earnings. It remains to be seen how the rest of its peer group’s results will turn out and if ELP-US‘s performance is a sign of any major shift in the composition of market share in this sector. Also, for comparison purposes, revenues changed by 16.88% and earnings by 8.13% compared to the previous period.

Earnings Growth Analysis

The company’s year-on-year decline in earnings was influenced by a weakening in gross margins from 22.12% to 8.36%, as well as issues with cost controls. As a result, operating margins (EBITDA margins) went from 19.69% to 5.55% in this time frame. For comparison, gross margins were 16.92% and EBITDA margins were 15.34% in the previous period.

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 year-on-year change in operating cash flow of -54.72% is around its change in earnings. This suggests that there are likely no significant movement in accruals or reserves for managing earnings this period.

Margins

The company’s decline in earnings has been influenced by the following factors: (1) Decline in operating margins (EBIT margins) from 14.50% to 0.41% and (2) one-time items that contributed to a decrease in pretax margins from 17.32% to -8.55%

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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