Companhia Energética de Minas Gerais SA :CIG-US: Earnings Analysis: Q2, 2017 By the Numbers : September 21, 2017

Companhia Energética de Minas Gerais SA reports financial results for the quarter ended June 30, 2017.

We analyze the earnings along side the following peers of Companhia Energética de Minas Gerais SA – Companhia Paranaense de Energia Sponsored ADR Pfd Class B, CPFL Energia S.A. Sponsored ADR, FirstEnergy Corp., Consolidated Edison, Inc., EDP-Energias de Portugal SA Sponsored ADR and Vale S.A. Sponsored ADR (ELP-US, CPL-US, FE-US, ED-US, EDPFY-US and VALE-US) that have also reported for this period.


  • Summary numbers: Revenues of USD 1,601.07 million, Net Earnings of USD 42.44 million.
  • Gross margins narrowed from 23.63% to 17.88% compared to the same period last year, operating (EBITDA) margins now 16.20% from 23.63%.
  • Year-on-year change in operating cash flow of 51.82% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • 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:

2017-06-30 2017-03-31 2016-12-31 2016-09-30 2016-06-30
Relevant Numbers (Quarterly)
Revenues (mil) 1601.07 1531.04 1430.97 1511.36 1393.82
Revenue Growth (%YOY) 14.87 31.9 6.12 15.75 -19.94
Earnings (mil) 42.44 108.98 -93.78 133.83 59.24
Earnings Growth (%YOY) -28.35 8064.89 -219.74 193.85 -65.65
Net Margin (%) 2.65 7.12 -6.55 8.86 4.25
EPS 0.03 0.09 -0.07 0.11 0.05
Return on Equity (%) 1.2 3.11 -2.6 3.54 1.72
Return on Assets (%) 1.32 3.34 -2.86 4.02 1.89

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Market Share Versus Profits

Revenues History
Earnings History

CIG-US’s change in revenue this period compared to the same period last year of 14.87% 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 CIG-US is holding onto its market share. Also, for comparison purposes, revenues changed by 4.57% and earnings by -61.06% 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 23.63% to 17.88%, as well as issues with cost controls. As a result, operating margins (EBITDA margins) went from 23.63% to 16.20% in this time frame. For comparison, gross margins were 28.31% and EBITDA margins were 25.83% 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

CIG-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 -64.62 days, compared to last year’s level of -74.54 days.

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?

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

CIG-US’s change in operating cash flow of 51.82% 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


The company’s decline in earnings has been influenced by the following factors: (1) Decline in operating margins (EBIT margins) from 19.43% to 12.18% and (2) one-time items that contributed to a decrease in pretax margins from 4.06% to 3.04%

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

Companhia Energética de Minas Gerais SA engages in the generation, transmission, distribution and sale of electricity, gas distribution, telecommunications and the provision of energy solutions. It operates through the following segments: Generation, Transmission, Distribution, and Other Businesses. The Generation segment engages in the generation of electricity through hydroelectric plants, thermoelectric plants and wind farms. The Transmission segment engages in the electric power transmission business, which consists of transporting electric power from the facilities where it broadcasted to the distribution networks for delivery to final users. The Distribution segment engages in the supply electricity to consumers in the state of Minas Gerais. The Other Businesses segment engages in the telecommunications, national and international energy solutions, and exploitation of natural gas. The company was founded by Juscelino Kubitschek de Oliveira on May 22, 1952 and is headquartered in Belo Horizonte, Brazil.

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