Iberdrola Net Drops 33% in Fourth Quarter on Spain, Brazil

Iberdrola SA, Spain’s largest electricity utility, said fourth-quarter profit declined 33 percent on lower income from Brazil and at home.

Net income fell to 440 million euros ($589 million) from 661.6 million euros a year earlier, the company said today in a filing. That missed the 520 million-euro average estimate of seven analysts surveyed by Bloomberg. The company’s share buyback plan was expanded today, and the stock climbed.

Chairman Ignacio Galan announced plans in October to cut about 4 percent of the workforce and sell assets worth as much as 5 billion euros by 2014 as the utility made a priority of reducing leverage and investing in regulated businesses. Divestments totaled about 850 million euros as of Dec. 31.

The plan “will expectedly solve its still too-high leverage and at the same time shift towards the less-volatile regulated business, setting the grounds for future secure growth,” BPI analysts Bruno Silva and Gonzalo Sanchez-Bordona wrote in a Feb. 8 report.

Before the earnings release today, the Bilbao-based company said it would buy back as much as 1.1 percent of its shares and cancel 1.4 percent, held as treasury stock.

Iberdrola rose 0.7 percent to 3.86 euros a share in Madrid as of 10:41 a.m. The stock is down 8 percent this year, underperforming the average of rival Spanish power companies, European utilities and Spain’s benchmark IBEX 35 index, which is up 1 percent since Dec. 31.

Ebitda Decline

Fourth-quarter earnings before interest, tax, depreciation and amortization, or Ebitda, fell 5.6 percent to 1.95 billion euros, almost matching estimates of eight analyst surveyed by Bloomberg.

In Brazil, Ebitda dropped almost in half, to 134 million euros from 256 million euros, subtracting nine-month figures from the full-year results, as divisional results weren’t given for quarters. Using the same method, Spanish Ebitda tumbled to 134 million euros from 337 million euros a year earlier.

Iberdrola, the world’s largest wind-farm operator, has suffered under a series of regulations led by Industry Minister Jose Manuel Soria to eliminate Spain’s power deficit and cut consumer costs for clean power. The latest forces wind-power generators to choose between a fixed tariff or the market price for power and revises subsidized feed-in tariffs annually based on a reduced inflation index. This follows a 7 percent tax on income from power generation approved in December.

In Spain, regulatory measures and reduced sales were expected to cut Ebitda by 9.9 percent to 2.8 billion euros, according to an analysis by Banco Sabadell before earnings.

Tariff Deficit

Other government measures, such as a 2.2 billion-euro credit line from the Spanish budget to cover the tariff deficit, will have a positive impact on the Bilbao-based utility as it helps to cover any shortfall in regulated income, analysts at Banco Sabadell said.

The tariff deficit, the shortfall between regulated tariffs and the cost of generating electricity, has “mainly been shouldered in recent years by the large utilities,” such as Iberdrola, according to a report by Fitch published Feb. 8.

The company, which last year targeted 26 billion euros of debt by 2014, lowered its net debt 4.4 percent from a year earlier to 30.3 billion euros.

“We think Iberdrola’s plan is on track, assuming no further negative changes in Spain in the coming months,” Morgan Stanley analysts Carolina Dores and Anna Maria Scaglia wrote in a Feb. 7 report.

Brazilian earnings are also “under pressure” according to a JPMorgan Feb. 7 report. Government regulations in Brazil seek to cut electricity prices by as much as 32 percent as the government plans to make Brazilian industries more competitive and lower the fourth-highest rates in the world.

Iberdrola is seeking compensation after the nationalization of its four Bolivian units in December. Representatives from both sides met on Jan. 21 in an “atmosphere of total cordiality,” the Bolivian Energy Ministry said, without giving terms for a proposed resolution.

The company planned to claim just compensation, according to an Iberdrola spokeswoman on Jan. 22. The units represented 0.4 percent of Iberdrola’s 2011 net profit and a stake valued at about 65 million euros, according to BPI estimates.

To contact the reporter on this story: Patricia Laya in Madrid at playa2@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net

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