NRG Energy, Inc. :NRG-US: Earnings Analysis: Q1, 2017 By the Numbers : May 4, 2017

NRG Energy, Inc. reports financial results for the quarter ended March 31, 2017.

We analyze the earnings along side the following peers of NRG Energy, Inc. – Edison International, Exelon Corporation, NextEra Energy, Inc. and Calpine Corporation (EIX-US, EXC-US, NEE-US and CPN-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 2859 million, Net Earnings of USD -163 million.
  • Gross margins narrowed from 20.06% to 19.87% compared to the same period last year, operating (EBITDA) margins now 20.67% from 21.49%.
  • Year-on-year change in operating cash flow of -112.27% 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:

2017-03-31 2016-12-31 2016-09-30 2016-06-30 2016-03-31
Relevant Numbers (Quarterly)
Revenues (mil) 2859 2800 4021 3141 3141
Revenue Growth (%YOY) -8.98 -10.26 -8.59 -11.1 -20.12
Earnings (mil) -163 -987 402 -271 82
Earnings Growth (%YOY) -298.78 84.37 509.09 -1835.71 168.33
Net Margin (%) -5.7 -35.25 10 -8.63 2.61
EPS -0.52 -3.12 1.27 -0.61 0.24
Return on Equity (%) -15.25 -78.93 30.18 -14.23 5.37
Return on Assets (%) -2.18 -12.77 5.11 -3.38 1

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Market Share Versus Profits

Revenues History
Earnings History

NRG-US‘s change in revenue this period compared to the same period last year of -8.98% 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 NRG-US is holding onto its market share. Also, for comparison purposes, revenues changed by 2.11% and earnings by 83.49% 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 decline in earnings was influenced by a weakening in gross margins from 20.06% to 19.87%, as well as issues with cost controls. As a result, operating margins (EBITDA margins) went from 21.49% to 20.67% in this time frame. For comparison, gross margins were 12.82% and EBITDA margins were 15.54% in the previous 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

NRG-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 51.82 days from 87.26 days for the same period last year. This leads Capital Cube to conclude that the gross margin decline is not altogether bad.

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.

NRG-US‘s change in operating cash flow of -112.27% 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 11.11% to 9.76% and (2) one-time items that contributed to a decrease in pretax margins from 2.16% to -7.24%

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

NRG Energy, Inc. engages in the production, sale, and distribution of energy and energy services. Its wholesale operations include plant operations, commercial operations, EPC, energy services and other critical related functions. It operates through the following segments: Generation, Retail, Renewables and Corporate. The Generation segment includes company’s wholesale operations including plant operations, commercial operations, EPC, energy services and other critical related functions. The Retail segment provides energy and related services as well as personal power to Mass Market consumers through various brandsand sales channels across the U.S. Retail also includes C&I customers and other distributed and reliability products which are within NRG’s Business Solutions group. The Renewables segment focuses on the acquisition, development and operation and maintenance of utility scale wind and solar, community solar and distributed solar generation assets as well as the management and operations of the renewable generation assets owned by NRG Yield, Inc. The Corporate segment includes residential solar and electric vehicle services. The company was founded in 1989 and is headquartered in Princeton, NJ.

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