Centrais Elétricas Brasileiras SA :EBR-US: Earnings Analysis: Q4, 2016 By the Numbers : April 3, 2017

Centrais Elétricas Brasileiras SA reports financial results for the quarter ended December 31, 2016.

Highlights

  • Summary numbers: Revenues of USD 3,765.04 million, Net Earnings of USD -1,917.43 million.
  • Gross margins widened from 49.56% to 50.33% compared to the same period last year, operating (EBITDA) margins now -43.99% from -112.15%.
  • Change in operating cash flow of -122.87% compared to same period last year is about the same as 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) 3765.04 2658.13 9699.95 1763.03 2012.66
Revenue Growth (%YOY) 87.07 23.24 265.19 -40.58 -47.33
Earnings (mil) -1917.43 266.41 3729.78 -1016.35 -2644.11
Earnings Growth (%YOY) 27.48 124.33 950.62 -334.66 -476.59
Net Margin (%) -50.93 10.02 38.45 -57.65 -131.37
EPS -1.42 0.19 2.73 -0.75 -1.95
Return on Equity (%) -52.29 6.73 112.53 -38.33 -89.36
Return on Assets (%) -14.43 1.97 31.06 -10.18 -27.77

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Market Share Versus Profits

Revenues History
Earnings History

Compared to the same period last year, EBR-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 EBR-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 41.64% and earnings by -819.72% compared to the previous period.

Earnings Growth Analysis

The company’s earnings growth was influenced by year-on-year improvement in gross margins from 49.56% to 50.33% as well as better cost controls. As a result, operating margins (EBITDA margins) rose from -112.15% to -43.99% compared to the same period last year. For comparison, gross margins were 53.36% and EBITDA margins were 15.17% in the last reporting period.

Cash Versus Earnings – Sustainable Performance?

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

EBR-US‘s year-on-year change in operating cash flow of -122.87% 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

The company’s earnings growth has also been influenced by the following factors: (1) Improvements in operating (EBIT) margins from -118.43% to -48.19% and (2) one-time items. The company’s pretax margins are now -63.34% compared to -139.88% for the same period last year.

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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