Centrais Elétricas Brasileiras SA :EBR.B-US: Earnings Analysis: Q3, 2017 By the Numbers : December 5, 2017

Centrais Elétricas Brasileiras SA reports financial results for the quarter ended September 30, 2017.

We analyze the earnings along side the following peers of Centrais Elétricas Brasileiras SA – Companhia Paranaense de Energia Sponsored ADR Pfd Class B, CPFL Energia S.A. Sponsored ADR, Companhia Energetica de Minas Gerais SA Sponsored ADR Pfd, Duke Energy Corporation, FirstEnergy Corp., Consolidated Edison, Inc., NextEra Energy, Inc., SSE plc Sponsored ADR, Alcoa Corp. and Petroleo Brasileiro SA Sponsored ADR (ELP-US, CPL-US, CIG-US, DUK-US, FE-US, ED-US, NEE-US, SSEZY-US, AA-US and PBR-US) that have also reported for this period.


  • Summary numbers: Revenues of USD 2,827.68 million, Net Earnings of USD 170.97 million.
  • Gross margins narrowed from 88.40% to 50.59% compared to the same period last year, operating (EBITDA) margins now 29.45% from 69.54%.
  • Narrowing of operating margins contributed to decline in earnings.

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

2017-09-30 2017-03-31 2016-12-31 2016-09-30 2016-06-30
Relevant Numbers (Quarterly)
Revenues (mil) 2827.68 2853.07 3765.04 2658.13 9699.95
Revenue Growth (%YOY) -70.85 61.83 87.07 23.24 265.19
Earnings (mil) 170.97 443.33 -1917.43 266.41 3729.78
Earnings Growth (%YOY) -95.42 143.62 27.48 124.33 950.62
Net Margin (%) 6.05 15.54 -50.93 10.02 38.45
EPS 0.12 0.32 -1.42 0.19 2.73
Return on Equity (%) 1.17 3.17 -13.07 1.68 28.13
Return on Assets (%) 1.28 3.37 -14.43 1.97 31.06

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Market Share Versus Profits

Revenues History
Earnings History

EBR.B-US’s change in revenue this period compared to the same period last year of -70.85% 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 EBR.B-US is holding onto its market share. Also, for comparison purposes, revenues changed by -0.89% and earnings by -61.44% 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 year-on-year decline in earnings was influenced by a weakening in gross margins from 88.40% to 50.59%, as well as issues with cost controls. As a result, operating margins (EBITDA margins) went from 69.54% to 29.45% in this time frame. For comparison, gross margins were 56.75% and EBITDA margins were 29.41% in the previous period.

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

EBR.B-US’s decline in gross margins has not produced any significant offsetting improvement in its working capital . This leads Capital Cube to conclude that the decline in gross margins are likely from operating issues and not trade-offs with the balance sheet. Working capital days are currently 24.86 days, compared to last year’s level of -6.56 days.

Gross Margin Versus Working Capital Days

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich


The company’s decline in earnings has been influenced by the following factors: (1) Decline in operating margins (EBIT margins) from 68.18% to 24.20% and (2) one-time items that contributed to a decrease in pretax margins from 64.46% to 6.56%

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

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Company Profile

Centrais Elétricas Brasileiras SA engages in the production and dissemination of electricity. It operates through the following segments: Management, Generation, Transmission, and Distribution. The Management segment refers to the corporate and administrative activities of the firm. The Generation segment operates wind farms, solar panels and hydroelectric, thermoelectric, and thermonuclear plants. The Transmission segment manages electric power transmission lines. The Distribution segment is responsible for the circulation of electric power. The company was founded in June 11, 1962 by Getulio Dornelles Vargas and is headquartered in Rio de Janeiro, Brazil.

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