Electro-Sensors, Inc. :ELSE-US: Earnings Analysis: Q4, 2016 By the Numbers : March 31, 2017

Electro-Sensors, Inc. reports financial results for the quarter ended December 31, 2016.

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


  • Summary numbers: Revenues of USD 1.53 million, Net Earnings of USD 0.13 million.
  • Gross margins narrowed from 52.58% to 50.75% compared to the same period last year, operating (EBITDA) margins now 10.49% from -5.09%.
  • Year-on-year change in operating cash flow of 158.44% is about the same as the 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) 1.53 1.84 2.01 1.72 1.57
Revenue Growth (%YOY) -2.93 -13.84 -1.9 -8.97 -5.48
Earnings (mil) 0.13 0.02 0.14 -0.09 -0.03
Earnings Growth (%YOY) 526.67 -88.21 -71.77 -116.09 -116.76
Net Margin (%) 8.39 1.25 6.97 -5.19 -1.91
EPS 0.04 0.01 0.04 -0.03 -0.01
Return on Equity (%) 4.18 0.76 4.64 -2.96 -1
Return on Assets (%) 3.91 0.7 4.28 -2.7 -0.88

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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 -2.93% 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 -16.98% and earnings by 456.52% 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 gross margins showed no year-on-year improvement. In spite of this, the company’s earnings rose, influenced primarily by the improvement in operating margins (EBITDA margins) from -5.09% to 10.49%. For comparison, gross margins were 54.55% and EBITDA margins were 5.82% in the last 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 610.54 days, compared to last year’s level of 577.92 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.

ELSE-US‘s change in operating cash flow of 158.44% 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 earnings growth has also been influenced by the following factors: (1) Improvements in operating (EBIT) margins from -10.44% to 5.38% and (2) one-time items. The company’s pretax margins are now 5.70% compared to -10.63% for the same period last year.

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

Electro-Sensors, Inc. engages in manufacturing and selling of monitoring systems that measure actual machine production and operation rates. It operates through the Production Monitoring and Investments segments. The Production Monitoring segment offers manufacturing and marketing line of production monitoring equipment. The Investments segment includes investments in marketable and non-marketable securities. The company was founded by James P. Slattery in 1965 and is headquartered in Minnetonka, MN.

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