Iberdrola’s 1Q Results Lower; Wind in Spain Not Enough to Offset Higher Levies on Power Production

Iberdrola reported 2013 first-quarter EPS of EUR 0.140 versus EUR 0.171 in the same period last year. Operating profit declines in the Networks segment in Brazil and the Generation and Supply segment in Spain were partially offset by a strong Renewables performance. Management reiterated its outlook for 2013, which includes net debt declining to EUR 28 billion by year-end, EBITDA flat to down 0.5% versus 2012, and shareholder remuneration equal to EUR 0.30 per share. We are reaffirming our narrow moat and stable moat trend rating as well as our fair value estimate of EUR 4.40 per share.

Networks’ business operating profit fell 8.3% in the recently ended quarter versus the same period last year. The decrease was due in large part to the temporary impact of higher energy costs in Brazil, which the company expects to recover during the next year from rate revisions. Generation and Supply business’s operating profit fell almost 15% in the first quarter versus the same period last year. The business benefited from a 150% increase in hydro production, increasing gross margins by more than 11%.

However, the benefit to gross margin was more than offset by a 500% increase in Spanish levies on power production. The higher levies were the result of taxes initiated by Spain on electric production and spent nuclear fuel in 2012. At the Renewables business, operating profit increased 28%, partially offsetting the losses in the other two businesses. In addition to more wind capacity, up 4.6% to 14,009 MW, a windy first quarter in Spain drove wind turbine load factors to 33.5% versus 29.6% last year.

The consolidated tariff deficit fell to EUR 2.0 billion from EUR 3.0 billion at 2012 year-end. The improvement was driven by securitizations in Spain. Iberdrola looks well ahead of our estimate of EUR 1.0 billion reduction in the tariff deficit in 2013 when including an additional EUR 432 million securitization that executed already in the second quarter.


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Ryan Burgas is a regular contributor covering business and finance topics.