Entergy Corp. :ETR-US: Earnings Analysis: 2016 By the Numbers : February 21, 2017

Entergy Corp. reports financial results for the year ended December 31, 2016.

We analyze the earnings along side the following peers of Entergy Corp. – American Electric Power Company, Inc., Duke Energy Corporation, Dominion Resources, Inc., PPL Corporation, Consolidated Edison, Inc., Exelon Corporation and CMS Energy Corporation (AEP-US, DUK-US, D-US, PPL-US, ED-US, EXC-US and CMS-US) that have also reported for this period.

Highlights

  • Gross margins widened from 17.48% to 24.30% compared to the same period last year, operating (EBITDA) margins now 37.55% from 30.93%.
  • Year-on-year change in operating cash flow of -8.89% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings declined although operating margins improved from 11.92% to 17.97%.

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

2016 2015 2014 2013 2012
Relevant Numbers (Annual)
Revenues 10845.65 11138.7 12625.22 11393.93 10033.08
Revenue Growth (YOY) N/A N/A N/A N/A N/A
Earnings -564.5 -156.73 960.26 730.57 868.36
Earnings Growth (YOY) -260.17 -116.32 31.44 -15.87 -36.49
Net Margin -5.2 -1.41 7.61 6.41 8.66
EPS -3.26 -0.99 5.22 3.99 4.76
Return on Equity -6.54 -1.78 9.39 7.49 9.23
Return on Assets -1.25 -0.34 2.14 1.69 2.07

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Earnings Growth Analysis

The company’s year-on-year earnings decline did not come as a result of a contraction in gross margins or because of any cost control issues. Both gross margins and operating margins (EBITDA) margins actually improved over this time frame. Gross margins went from 17.48% to 24.30%, while operating margins improved from 30.93% to 37.55% over this period. For comparison, gross margins were 17.48% and EBITDA margins 30.93% in the immediate 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

ETR-US‘s improvement in gross margin has been accompanied by an improvement in its balance sheet as well. This suggests that gross margin improvements are likely from operating decisions and not accounting gimmicks. Its working capital days have declined to 16.75 days from 17.90 days for the same period last year.

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.

ETR-US‘s change in operating cash flow of -8.89% 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 an overall improvement in operating (EBIT) margins, the company’s earnings fell. EBIT margins went from 11.92% to 17.97%. The decline in earnings appears to be largely because of one-time items. Pretax margins declined from -7.18% to -12.74%.

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

Entergy Corp. engages primarily in electric power production and retail distribution operations. It operates through two segments: Utility and Entergy Wholesale Commodities. The Utility segment includes the generation, transmission, distribution and sale of electric power in portions of Arkansas, Mississippi, Texas and Louisiana, including the City of New Orleans; and also operates a small natural gas distribution business. The Entergy Wholesale Commodities segment includes the ownership and operation of six nuclear power plants located in the Northern United States and the sale of the electric power produced by those plants to wholesale customers. This segment also provides services to other nuclear power plant owners and also owns interests in non-nuclear power plants that sell the electric power produced by those plants to wholesale customers. The company was founded by Harvey Couch on November 13, 1913 and is headquartered in New Orleans, LA.

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