Entergy Corp. :ETR-US: Earnings Analysis: Q4, 2016 By the Numbers : February 17, 2017

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

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

Highlights

  • Summary numbers: Revenues of USD 2,648.53 million, Net Earnings of USD -1,765.54 million.
  • Gross margins widened from 13.62% to 14.59% compared to the same period last year, operating (EBITDA) margins now 29.37% from 27.86%.
  • Year-on-year change in operating cash flow of -20.74% 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:

2016-12-31 2016-09-30 2016-06-30 2016-03-31 2015-12-31
Relevant Numbers (Quarterly)
Revenues (mil) 2648.53 3043.75 2425.59 2455.89 2508.52
Revenue Growth (%YOY) 5.58 -7.44 -5.35 -16.08 -11.4
Earnings (mil) -1765.54 393.2 572.59 235.24 104.85
Earnings Growth (%YOY) -1783.89 154.75 272.48 -22.34 -16.12
Net Margin (%) -66.66 12.92 23.61 9.58 4.18
EPS -9.88 2.16 3.16 1.28 0.56
Return on Equity (%) -76.14 15.24 22.97 9.55 4.21
Return on Assets (%) -15.08 3.36 4.99 2.08 0.94

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Market Share Versus Profits

Revenues History
Earnings History

ETR-US‘s change in revenue this period compared to the same period last year of 5.58% 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 ETR-US is holding onto its market share. Also, for comparison purposes, revenues changed by -12.98% and earnings by -549.01% 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 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 13.62% to 14.59%, while operating margins improved from 27.86% to 29.37% over this period. For comparison, gross margins were 27.27% and EBITDA margins 38.90% 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 14.75 days from 21.47 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 -20.74% 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

The company’s decline in earnings has been influenced by the following factors: (1) Decline in operating margins (EBIT margins) from 7.75% to 7.68% and (2) one-time items that contributed to a decrease in pretax margins from -16.77% to -103.14%

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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