DTE Energy Co. :DTE-US: Earnings Analysis: Q1, 2017 By the Numbers : April 27, 2017

DTE Energy Co. reports financial results for the quarter ended March 31, 2017.

Highlights

  • Summary numbers: Revenues of USD 3186 million, Net Earnings of USD 400 million.
  • Gross margins narrowed from 19.83% to 17.80% compared to the same period last year, operating (EBITDA) margins now 22.57% from 25.29%.
  • Change in operating cash flow of 6.21% compared to same period last year is about the same as change in earnings, likely no significant movement in accruals or reserves.
  • Earnings growth due to contribution of one-time items.

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

2017-03-31 2016-12-31 2016-09-30 2016-06-30 2016-03-31
Relevant Numbers (Quarterly)
Revenues (mil) 3186 2874 2888 2272 2653
Revenue Growth (%YOY) 20.09 15.56 14.06 0.75 -13.86
Earnings (mil) 400 131 338 152 247
Earnings Growth (%YOY) 61.94 63.75 27.55 39.45 -9.52
Net Margin (%) 12.55 4.56 11.7 6.69 9.31
EPS 2.23 0.73 1.88 0.84 1.37
Return on Equity (%) 16.68 5.62 15.07 6.87 11.16
Return on Assets (%) 4.99 1.7 4.64 2.12 3.45

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Market Share Versus Profits

Revenues History
Earnings History

Compared to the same period last year, DTE-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 DTE-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 10.86% and earnings by 205.34% compared to the previous period.

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 17.80% to 19.83% for the same period last year, while operating margins (EBITDA margins) went from 22.57% to 25.29% over the same time frame.

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

DTE-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 15.11 days, compared to last year’s level of 3.43 days.

Cash Versus Earnings – Sustainable Performance?

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

DTE-US‘s year-on-year change in operating cash flow of 6.21% 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 operating (EBIT) margins contracted from 16.09% to 14.38%. In spite of this, the company’s earnings rose. This was influenced primarily by one-time items, which improved pretax margins from 12.17% to 15.82%.

EBIT Margin History
PreTax Margin History

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Company Profile

DTE Energy Co. is a diversified energy company, which is primarily engaged in the business of providing electricity and natural gas sales, distribution and storage services throughout Michigan through its subsidiaries. It operates through the following segments: DTE Electric, DTE Gas and Other. The DTE Electric segment is engaged in the generation, purchase, distribution and sale of electricity to residential, commercial and industrial customers in southeastern Michigan. The DTE Gas segment consists principally of DTE Gas, which is engaged in the purchase, storage, transportation, distribution and sale of natural gas residential, commercial and industrial customers throughout Michigan and the sale of gas storage and transportation capacity. The Other segment is involved in natural gas pipelines, gathering and storage; power and industrial projects; and energy marketing and trading operations. The company was founded in January 1995 and is headquartered in Detroit, MI.

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