Centrais Elétricas Brasileiras SA :EBR-US: Earnings Analysis: Q3, 2016 By the Numbers : November 15, 2016

Centrais Elétricas Brasileiras SA reports financial results for the quarter ended September 30, 2016.

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, Duke Energy Corporation, FirstEnergy Corp., Consolidated Edison, Inc., NextEra Energy, Inc., SSE plc Sponsored ADR and Enersis Americas S.A. (ELP-US, CPL-US, DUK-US, FE-US, ED-US, NEE-US, SSEZY-US and ENERSIS.AM-CL) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 2,658.13 million, Net Earnings of USD 266.41 million.
  • Gross margins widened from 40.28% to 53.36% compared to the same period last year, operating (EBITDA) margins now 15.17% from -41.74%.
  • Year-on-year change in operating cash flow of -65.44% 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:

2016-09-30 2016-06-30 2016-03-31 2015-12-31 2015-09-30
Relevant Numbers (Quarterly)
Revenues (mil) 2658.13 9699.95 1763.03 2012.66 2156.96
Revenue Growth (%YOY) 23.24 265.19 -40.58 -47.33 -24.25
Earnings (mil) 266.41 3729.78 -1016.35 -2644.11 -1095.02
Earnings Growth (%YOY) 124.33 950.62 -334.66 -476.59 7.47
Net Margin (%) 10.02 38.45 -57.65 -131.37 -50.77
EPS 0.19 2.73 -0.75 -1.95 -0.81
Return on Equity (%) 6.73 112.53 -38.33 -89.36 -27.96
Return on Assets (%) 1.97 31.06 -10.18 -27.77 -10.08

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Market Share Versus Profits

Revenues History
Earnings History

EBR-US‘s change in revenue this period compared to the same period last year of 23.24% 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-US is holding onto its market share. Also, for comparison purposes, revenues changed by -72.60% and earnings by -92.86% 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 was influenced by year-on-year improvement in gross margins from 40.28% to 53.36% as well as better cost controls. As a result, operating margins (EBITDA margins) rose from -41.74% to 15.17% compared to the same period last year. For comparison, gross margins were 88.40% and EBITDA margins were 69.54% in the last reporting 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

Cash Versus Earnings – Sustainable Performance?

EBR-US‘s change in operating cash flow of -65.44% 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 -47.10% to 10.03% and (2) one-time items. The company’s pretax margins are now -7.27% compared to -51.44% 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

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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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