Eltek Ltd. :ELTK-US: Earnings Analysis: Q4, 2016 By the Numbers : April 13, 2017

Eltek Ltd. reports financial results for the quarter ended December 31, 2016.

Highlights

  • Summary numbers: Revenues of USD 8.11 million, Net Earnings of USD -3.01 million.
  • Gross margins narrowed from 16.25% to -5.71% compared to the same period last year, operating (EBITDA) margins now -14.43% from 4.37%.
  • 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:

2016-12-31 2016-09-30 2016-06-30 2016-03-31 2015-12-31
Relevant Numbers (Quarterly)
Revenues (mil) 8.11 9.25 9.9 9.8 10.41
Revenue Growth (%YOY) -22.09 -14.67 -4.61 0.85 -1.83
Earnings (mil) -3.01 -0.45 0.21 -0.38 0.23
Earnings Growth (%YOY) -1418.86 -171.47 -50 -64.1 112.52
Net Margin (%) -37.09 -4.82 2.14 -3.92 2.19
EPS -0.3 -0.04 0.02 -0.04 0.02
Return on Equity (%) -144.97 -17.71 8.31 -15.01 9.02
Return on Assets (%) -54.33 -7.31 3.41 -5.97 3.46

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Market Share Versus Profits

Revenues History
Earnings History

Compared to the same period last year, ELTK-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 ELTK-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 -12.36% and earnings by -574.22% compared to the previous period.

Earnings Growth Analysis

The company’s year-on-year decline in earnings was influenced by a weakening in gross margins from 16.25% to -5.71%, as well as issues with cost controls. As a result, operating margins (EBITDA margins) went from 4.37% to -14.43% in this time frame. For comparison, gross margins were 9.51% and EBITDA margins were 1.39% in the previous period.

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

ELTK-US‘s decline in gross margins were offset by some improvements on the balance sheet. The management of working capital, for example, shows progress. The company’s working capital days have fallen to 7.28 days from 16.57 days for the same period last year. This leads Capital Cube to conclude that the gross margin decline is not altogether bad.

Margins

The company’s decline in earnings has been influenced by the following factors: (1) Decline in operating margins (EBIT margins) from 4.37% to -19.89% and (2) one-time items that contributed to a decrease in pretax margins from 3.27% to -24.30%

EBIT Margin History
PreTax Margin History

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Company Profile

Eltek Ltd. is engaged in the development, manufacture, marketing, and sale of custom made printed circuit boards. Its products includes flex-rigid boards, rigid multilayer boards, High Density Interconnect, flex and multi-flex boards, Teflon and hybrid boards and backplanes. The company was founded on January 1, 1970 and is headquartered in Petach Tikva, Israel.

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