Electro-Sensors, Inc. :ELSE-US: Earnings Analysis: Q3, 2016 By the Numbers : November 14, 2016

Electro-Sensors, Inc. reports financial results for the quarter ended September 30, 2016.

We analyze the earnings along side the following peers of Electro-Sensors, Inc. – Schmitt Industries, Inc., Danaher Corporation, AMETEK, Inc., Emerson Electric Co., FLIR Systems, Inc., Cognex Corporation and Vishay Precision Group, Inc. (SMIT-US, DHR-US, AME-US, EMR-US, FLIR-US, CGNX-US and VPG-US) that have also reported for this period.


  • Summary numbers: Revenues of USD 1.84 million, Net Earnings of USD 0.02 million.
  • Gross margins narrowed from 56.85% to 54.55% compared to the same period last year, operating (EBITDA) margins now 5.82% from 17.87%.
  • Year-on-year change in operating cash flow of 128% 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:

2016-09-30 2016-06-30 2016-03-31 2015-12-31 2015-09-30
Relevant Numbers (Quarterly)
Revenues (mil) 1.84 2.01 1.72 1.57 2.13
Revenue Growth (%YOY) -13.84 -1.9 -8.97 -5.48 11.22
Earnings (mil) 0.02 0.14 -0.09 -0.03 0.2
Earnings Growth (%YOY) -88.21 -71.77 -116.09 -116.76 -37.7
Net Margin (%) 1.25 6.97 -5.19 -1.91 9.15
EPS 0.01 0.04 -0.03 -0.01 0.05
Return on Equity (%) 0.76 4.64 -2.96 -1 6.53
Return on Assets (%) 0.7 4.28 -2.7 -0.88 5.69

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Market Share Versus Profits

Revenues History
Earnings History

ELSE-US‘s change in revenue this period compared to the same period last year of -13.84% 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 ELSE-US is holding onto its market share. Also, for comparison purposes, revenues changed by -8.56% and earnings by -83.57% 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 56.85% to 54.55%, as well as issues with cost controls. As a result, operating margins (EBITDA margins) went from 17.87% to 5.82% in this time frame. For comparison, gross margins were 58.44% and EBITDA margins were 14.19% 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

ELSE-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 503.62 days, compared to last year’s level of 420.85 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?

ELSE-US‘s change in operating cash flow of 128% 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 13.79% to 1.58% and (2) one-time items that contributed to a decrease in pretax margins from 14.02% to 1.91%

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

Access our Ratings and Scores for Electro-Sensors, Inc.

Company Profile

Electro-Sensors, Inc. is a manufacturer of machine monitoring and motor control technologies worldwide. The company has two reportable operating segments: Production Monitoring and Investments. The Production Monitoring segment manufactures and markets a complete line of production monitoring equipment, in particular speed monitoring and motor control systems for industrial machinery. The investments segment holds investments in marketable and non-marketable securities. Electro-Sensors was founded by James P. Slattery in 1965 and is headquartered in Minnetonka, MN.

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