Calpine Corp. :CPN-US: Earnings Analysis: Q3, 2016 By the Numbers : November 1, 2016

Calpine Corp. reports financial results for the quarter ended September 30, 2016.

We analyze the earnings along side the following peers of Calpine Corp. – SCANA Corporation, CMS Energy Corporation and Entergy Corporation (SCG-US, CMS-US and ETR-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 2038 million, Net Earnings of USD 295 million.
  • Gross margins narrowed from 24.10% to -62.90% compared to the same period last year, operating (EBITDA) margins now -54.96% from 31.38%.
  • Year-on-year change in operating cash flow of 3.78% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings rose compared to same period last year, despite decline in operating and pretax margins.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2015-09-30 2015-12-31 2016-03-31 2016-06-30 2016-09-30
Relevant Numbers (Quarterly)
Revenues (mil) 1759 1331 1411 1428 2038
Revenue Growth (%YOY) -19.57 -31.36 -14.28 7.61 15.86
Earnings (mil) 273 -47 -198 -29 295
Earnings Growth (%YOY) -55.54 -122.38 -1880 -252.63 8.06
Net Margin (%) 15.52 -3.53 -14.03 -2.03 14.47
EPS 0.76 -0.13 -0.56 -0.08 0.83
Return on Equity (%) 35.16 -5.9 -25.8 -3.92 37.92
Return on Assets (%) 6.13 -1.02 -4.22 -0.63 6.56

Access our Ratings and Scores for Calpine Corp.

Market Share Versus Profits

Revenues History
Earnings History

CPN-US‘s change in revenue this period compared to the same period last year of 15.86% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that CPN-US is holding onto its market share. Also, for comparison purposes, revenues changed by 42.72% and earnings by 1,117.24% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

The company’s earnings rose year-on-year. But this growth has not come as a result of improvement in gross margins or any cost control activities in its operations. Gross margins went from -62.90% to 24.10% for the same period last year, while operating margins (EBITDA margins) went from -54.96% to 31.38% over the same time frame.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

CPN-US‘s decline in gross margins were offset by some improvements on the balance sheet. The management of working capital, for example, shows progress. The company’s working capital days have fallen to 47.24 days from 53.96 days for the same period last year. This leads Capital Cube to conclude that the gross margin decline is not altogether bad.

Gross Margin Versus Working Capital Days

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich

Cash Versus Earnings – Sustainable Performance?

CPN-US‘s change in operating cash flow of 3.78% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings

Margins

Despite a decline in operating (EBIT) margins as well as a decline in pretax margins, the company’s earnings rose.

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

Access our Ratings and Scores for Calpine Corp.

Company Profile

Calpine Corp. is a power producer company, which develops, constructs, owns and operates a modern and flexible fleet of low-carbon, natural gas-fired and renewable geothermal power plants. The company sells wholesale power, steam, regulatory capacity, renewable energy credits and ancillary services, including utilities, independent electric system operators, industrial and agricultural companies, retail power providers, municipalities, power marketers and others. Its portfolio is primarily comprised of two types of power generation technologies: natural gas-fired combustion turbines, which are primarily efficient combined-cycle plants, and renewable geothermal conventional steam turbines. The company generates power in a reliable and environmentally responsible manner for the customers and communities it serves. It operates through four segments: West (including geothermal), Texas, North (including Canada) and Southeast. Calpine was founded by Peter Cartwright in June 1984 and is headquartered in Houston, TX.

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