Cresud SA :CRESY-US: Earnings Analysis: Q1, 2017 By the Numbers : November 18, 2016

Cresud SA reports financial results for the quarter ended September 30, 2016.

We analyze the earnings along side the following peers of Cresud SA – SLC Agricola S.A. and Bunge Limited (SLCE3-BR and BG-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 1,310.41 million, Net Earnings of USD -8.43 million.
  • Gross margins narrowed from 52.94% to 26.93% compared to the same period last year, operating (EBITDA) margins now 14.79% from 35.99%.
  • Year-on-year change in operating cash flow of 840.73% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings rose compared to same period last year, despite decline in operating and pretax margins.

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) 1310.41 960.84 1240.37 168.24 174.72
Revenue Growth (%YOY) 650.02 446.75 857.68 0.89 -4.1
Earnings (mil) -8.43 -32.45 -10.86 -46.18 -31.42
Earnings Growth (%YOY) 73.18 -148.51 65.13 -318.02 -115.44
Net Margin (%) -0.64 -3.38 -0.88 -27.45 -17.99
EPS -0.63 -0.64 -0.22 -0.91 -0.61
Return on Equity (%) -3.3 -15.38 -6.97 -37.61 -27.89
Return on Assets (%) -0.3 -1.16 -0.39 -2.95 -7.35

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Market Share Versus Profits

Revenues History
Earnings History

CRESY-US‘s change in revenue this period compared to the same period last year of 650.02% 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 CRESY-US is holding onto its market share. Also, for comparison purposes, revenues changed by 36.38% and earnings by 74.03% 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 rose year-on-year. But this growth has not come as a result of improvement in gross margins or any cost control activities in its operations. Gross margins went from 26.93% to 52.94% for the same period last year, while operating margins (EBITDA margins) went from 14.79% to 35.99% over the same time frame.

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

CRESY-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 19.71 days, compared to last year’s level of 8.37 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?

CRESY-US‘s change in operating cash flow of 840.73% 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

Despite a decline in operating (EBIT) margins as well as a decline in pretax margins, the company’s earnings rose.

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

Cresud SA engages in the production of basic agricultural commodities. It involves in farming activities which include grain and sugarcane production, cattle raising, and milk production. It operates through the following segments: Grains and Sugarcane; Finance and Milk; Acquisition, Sale, and Conversion of Land; and Other Segments. The Grains and Sugarcane segment includes production of crop mainly based on grains, oilseeds, and sugarcane. The Finance and Milk includes beef cattle production and milk business. The Acquisition, Sale, and Conversion of Land involves land sale and acquisition and farmland development. The Other Segments covers leases, agricultural services, grain trading, and agro-industrial activities. The company was founded on December 31, 1936 and is headquartered in Buenos Aires, Argentina.

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