Suez Environnement (SEV.FR) shares soared Wednesday after the company's first-half earnings exceeded market expectations, even though it trimmed full-year guidance as the economic downturn weighed on its waste business.

The Paris-based water and waste utility, the world's second-largest by revenue after cross-town rival Veolia Environnement (VE), reported a smaller-than-expected 12.8% decline in first-half net profit and said it is now targeting "overall stability" for 2009 revenue and earnings before interest, taxes, depreciation and amortization at constant exchange rates.

The company had previously targeted slight growth in revenue and Ebitda for the year, but the lower guidance came as no great surprise to observers, who broadly had anticipated the trim.

At 1225 GMT, Suez Environnement shares traded up 10%, or EUR1.31 higher, at EUR14.35 each, against a slightly lower overall CAC-40 index.

In the economic downturn, lower volumes of waste to process and lower prices for recycled materials have weighed heavily on the waste business. A 10.2% drop in first-half sales in the company's European waste division illustrated that trend and fed through into a year-on-year earnings decline.

Net profit for the first six months of the year fell to EUR175 million from EUR201 million in the same period a year earlier, Suez Environnement said.

That exceeds an average expectation of EUR146 million, according to a Dow Jones Newswires survey of six analysts' forecasts.

Overall revenue fell 2.6% to EUR5.87 billion, from EUR6.03 billion in the first half of 2008.

Ebitda, meanwhile, fell 5.5% to EUR951 million from EUR1.01 billion in the year-earlier period, but topped analysts' average estimate from the poll of EUR926 million.

Several analysts made enthusiastic comments about the company's performance, comparing it favorably to rival Veolia.

The brokerage Kepler Capital Markets upgraded Suez Environnement to buy from reduce on Wednesday's news, saying the better-than-expected results illustrate the contribution of cost cutting, a "more-than-resilient" water business that compares favorably to Veolia, and a waste business whose Ebitda declined by less than Veolia's.

"We believe that Suez Environnement is the one environmental [services company] to pick to play better economic prospects," Kepler said.

The Swiss bank UBS said the consensus-beating results are "significantly better than Veolia."

"It supports our view that Suez Environnement is a more stable company than Veolia," UBS said.

Veolia reported first-half earnings on Aug. 6 that also illustrated the downturn's effect on the waste business. The company stuck to its full-year objectives, but its earnings missed analysts' expectations.

Suez Environnement said in its earnings statement that the economic situation continues to prove challenging, but Chief Executive Jean-Louis Chaussade expressed optimism that the company will do better in the second half of the year.

The company's operational performance is improving and, "we anticipate that this trend will continue with a second half of 2009 better than the first," Chaussade said.

Suez Environnement continues to accelerate its cost-cutting program and expects to exceed its target of EUR180 million in savings over the period 2008-2010, Chaussade said, adding the company doesn't have immediate plans to announce a new goal.

Company Web site: http://www.suez-environnement.com

-By Adam Mitchell, Dow Jones Newswires, +33 1 40171756; adam.mitchell@dowjones.com