Companhia Energetica de Minas Gerais (CIG), known as CEMIG, reported second quarter 2010 earnings per share of R$0.77 (US$0.43 per ADR), compared with R$0.88 (US$0.42 per ADR) in the second quarter of 2009. Earnings per ADR lagged the Zacks Consensus Estimate of US$0.47 per ADR.

Adjusted net income dipped 13.0% year over year to R$477 million (US$265 million), compared with R$547 million (US$261.7 million). The year-over-year decline was primarily due to higher operating expenses and lower revenues.

Revenue

Considering the top line, net revenues of R$2,954 million (US$1,641.1 million) decreased slightly by 0.6% year over year.
 
Electricity sold improved 12.5% year over year to 16,768 GWh versus 14,905 GWh due to higher consumption by all final customers. Electricity sold to final customers was 11,718 GWh, up 7.22% year over year. Residential sales grew 3.99% year over year while industrial sales increased 9.06%.

Margins

During the quarter, operating expenses went up 8% year over year to R$2,288 million (US$1,271.1 million), due to a 10% rise in purchased energy, 20% in depreciation and amortization, 10% in contract services, 29% in post-retirement employee benefits, 15% in material, 11% in gas purchased for resale and 15% in other expenses.

Adjusted EBITDA in the quarter was R$1,155.8 million (US$642.1 million), up 8.02% year over year with EBITDA margin improving 310 basis points to 39.1%. Financial revenue dipped 2.4% while financial expenses escalated 58.8%.

Balance Sheet/Cash Flow

Exiting the second quarter, CEMIG’s cash and cash equivalents plummeted 16.5% sequentially to R$3,755 million (US$2,086.1 million). Loans, financing and debentures, net of current portion were R$10,807 million (US$6,003.9 million), up 6.7% sequentially.

Net cash flows from operating activities were down 10.7% year over year to R$600 million (US$333.3 million).
 
Our Take

CEMIG is one of the largest integrated electric utilities in Brazil with more than 6,716 megawatts of installed generation capacity. Currently, the company is the fifth largest electricity generator in Brazil. Approximately 97% of the company’s installed generation capacity is hydroelectric power.

We currently maintain a Neutral rating on the stock.

 
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