Calpine Corp. :CPN-US: Earnings Analysis: Q4, 2016 By the Numbers : February 13, 2017

Calpine Corp. reports financial results for the quarter ended December 31, 2016.

We analyze the earnings along side the following peers of Calpine Corp. – CMS Energy Corporation and Dominion Resources, Inc. (CMS-US and D-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 1748 million, Net Earnings of USD 24 million.
  • Gross margins widened from 4.36% to 6.06% compared to the same period last year, operating (EBITDA) margins now 12.59% from 17.58%.
  • Year-on-year change in operating cash flow of -23.69% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings growth from operating margin improvements as well as one-time items.

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

2016-12-31 2016-09-30 2016-06-30 2016-03-31 2015-12-31
Relevant Numbers (Quarterly)
Revenues (mil) 1748 2038 1428 1411 1331
Revenue Growth (%YOY) 31.33 15.86 7.61 -7.6 -31.36
Earnings (mil) 24 295 -29 -198 -47
Earnings Growth (%YOY) 151.06 8.06 -252.63 -1880 -122.38
Net Margin (%) 1.37 14.47 -2.03 -14.03 -3.53
EPS 0.07 0.83 -0.08 -0.56 -0.13
Return on Equity (%) 2.9 37.92 -3.92 -25.8 -5.9
Return on Assets (%) 0.51 6.56 -0.63 -4.22 -1.02

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 31.33% 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 -14.23% and earnings by -91.86% 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 growth has been influenced by the year-on-year improvement in gross margins from 4.36% to 6.06%. However the company’s overhead costs have prevented it from fully capitalizing on these gross margin improvements. In fact, the company’s operating margins (EBITDA margins) showed no improvement over the same period last year.

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 improvement in gross margin has been accompanied by an improvement in its balance sheet as well. This suggests that gross margin improvements are likely from operating decisions and not accounting gimmicks. Its working capital days have declined to 55.47 days from 75.96 days for the same period last year.

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 -23.69% 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

The company’s earnings growth has also been influenced by the following factors: (1) Improvements in operating (EBIT) margins from -0.30% to 2.75% and (2) one-time items. The company’s pretax margins are now 3.38% compared to -11.42% for the same period last year.

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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