Cementos Pacasmayo SAA :CPAC-US: Earnings Analysis: Q1, 2017 By the Numbers : April 28, 2017

Cementos Pacasmayo SAA reports financial results for the quarter ended March 31, 2017.

Highlights

  • Summary numbers: Revenues of USD 85.78 million, Net Earnings of USD 7.06 million.
  • Gross margins widened from 36.91% to 40.32% compared to the same period last year, operating (EBITDA) margins now 29.67% from 26.16%.
  • Change in operating cash flow of 62.69% compared to same period last year is about the same as change in earnings, likely no significant movement in accruals or reserves.
  • Earnings declined although operating margins improved from 18.35% to 18.72%.

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

2017-03-31 2016-12-31 2016-09-30 2016-06-30 2016-03-31
Relevant Numbers (Quarterly)
Revenues (mil) 85.78 93.86 92.82 91.13 89.99
Revenue Growth (%YOY) -4.68 -10.25 -4.63 3.94 -4.48
Earnings (mil) 7.06 3.1 13.15 9.81 8.27
Earnings Growth (%YOY) -14.64 -82.9 -24.84 -31.62 -52.06
Net Margin (%) 8.23 3.3 14.17 10.77 9.19
EPS 0.06 0.05 0.19 0.14 0.11
Return on Equity (%) 5.18 2.12 8.63 6.18 5.39
Return on Assets (%) 3.01 1.24 5.12 3.82 3.28

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Market Share Versus Profits

Revenues History
Earnings History

Compared to the same period last year, CPAC-US‘s change in revenue was close to the amount of its change in earnings. It remains to be seen how the rest of its peer group’s results will turn out and if CPAC-US‘s performance is a sign of any major shift in the composition of market share in this sector. Also, for comparison purposes, revenues changed by -8.61% and earnings by 127.94% compared to the previous period.

Earnings Growth Analysis

The company’s year-on-year earnings decline did not come as a result of a contraction in gross margins or because of any cost control issues. Both gross margins and operating margins (EBITDA) margins actually improved over this time frame. Gross margins went from 36.91% to 40.32%, while operating margins improved from 26.16% to 29.67% over this period. For comparison, gross margins were 40.14% and EBITDA margins 28.76% in the immediate last period.

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

CPAC-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 118.77 days from 124.20 days for the same period last year.

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

CPAC-US‘s year-on-year change in operating cash flow of 62.69% is around its change in earnings. This suggests that there are likely no significant movement in accruals or reserves for managing earnings this period.

Margins

Despite an overall improvement in operating (EBIT) margins, the company’s earnings fell. EBIT margins went from 18.35% to 18.72%. The decline in earnings appears to be largely because of one-time items. Pretax margins declined from 12.89% to 12.30%.

EBIT Margin History
PreTax Margin History

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Company Profile

Cementos Pacasmayo SAA engages in the production and marketing of cement, quicklime, aggregates, ready-mix concrete, precast concrete products and other construction materials. It operates through the following segments: Cement, Concrete, and Blocks; Quicklime; and Sales of Construction Supplies. The company was founded in 1949 and is headquartered at Lima, Peru.

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