Magellan Aerospace Corp. :MAL-CA: Earnings Analysis: Q3, 2016 By the Numbers : November 18, 2016

Magellan Aerospace Corp. reports financial results for the quarter ended September 30, 2016.

We analyze the earnings along side the following peers of Magellan Aerospace Corp. – Heroux-Devtek Inc., Ducommun Incorporated, Bombardier Inc. Class B, CPI Aerostructures, Inc., MacDonald, Dettwiler and Associates Ltd. and Firan Technology Group Corporation (HRX-CA, DCO-US, BBD.B-CA, CVU-US, MDA-CA and FTG-CA) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of CAD 238.04 million, Net Earnings of CAD 18.83 million.
  • Gross margins narrowed from 16.87% to 16.33% compared to the same period last year, operating (EBITDA) margins now 15.36% from 15.93%.
  • Year-on-year change in operating cash flow of 13.94% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings growth due to contribution of one-time items.

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) 238.04 252.67 266.06 252.57 236.21
Revenue Growth (%YOY) 0.78 7.78 16.56 20.88 16.62
Earnings (mil) 18.83 22.32 23.43 25.47 18.53
Earnings Growth (%YOY) 1.61 35.55 21.88 42.65 42.21
Net Margin (%) 7.91 8.83 8.81 10.08 7.85
EPS 0.32 0.38 0.4 0.44 0.32
Return on Equity (%) 13.19 15.85 16.42 18.14 14.01
Return on Assets (%) 7.59 8.9 9.07 9.9 7.49

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Market Share Versus Profits

Revenues History
Earnings History

MAL-CA‘s change in revenue this period compared to the same period last year of 0.78% 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 MAL-CA is holding onto its market share. Also, for comparison purposes, revenues changed by -5.79% and earnings by -15.64% 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 earnings rose year-on-year. But this growth has not come as a result of improvement in gross margins or any cost control activities in its operations. Gross margins went from 16.33% to 16.87% for the same period last year, while operating margins (EBITDA margins) went from 15.36% to 15.93% over the same time frame.

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

MAL-CA‘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 93.72 days, compared to last year’s level of 88.11 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?

MAL-CA‘s change in operating cash flow of 13.94% 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 operating (EBIT) margins contracted from 11.11% to 10.45%. In spite of this, the company’s earnings rose. This was influenced primarily by one-time items, which improved pretax margins from 10.50% to 10.59%.

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

Magellan Aerospace Corp. is a global integrated aerospace company that provides complex assemblies and systems solutions to aircraft and engine manufacturers and defense and space agencies worldwide. Magellan designs, engineers and manufactures aero engine and aero structure components for aerospace markets, advanced products for defence and space markets and complementary specialty products. The company operates its business through two segments: Aerospace and Power Generation Project. The Aerospace segment supplies design engineering and aero structures products to an international customer base in the commercial and defense markets. The Power Generation Project is an electric power generation project in the Republic of Ghana. The company was founded on February 15, 1996 and is headquartered in Mississauga, Canada.

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