OGE Energy Corp. :OGE-US: Earnings Analysis: Q2, 2017 By the Numbers : September 13, 2017

OGE Energy Corp. reports financial results for the quarter ended June 30, 2017.

We analyze the earnings along side the following peers of OGE Energy Corp. – CenterPoint Energy, Inc., American Electric Power Company, Inc., Dominion Energy Inc, Duke Energy Corporation, SCANA Corporation, El Paso Electric Company, Entergy Corporation, Edison International, NRG Energy, Inc. and PG&E Corporation (CNP-US, AEP-US, D-US, DUK-US, SCG-US, EE-US, ETR-US, EIX-US, NRG-US and PCG-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 586.40 million, Net Earnings of USD 104.80 million.
  • Gross margins narrowed from 49.62% to 47.68% compared to the same period last year, operating (EBITDA) margins now 37.21% from 37.36%.
  • Year-on-year change in operating cash flow of 14.90% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings growth from operating margin improvements as well as one-time items.

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

2017-06-30 2017-03-31 2016-12-31 2016-09-30 2016-06-30
Relevant Numbers (Quarterly)
Revenues (mil) 586.4 456 530.8 743.9 551.4
Revenue Growth (%YOY) 6.35 5.29 18.72 3.35 0.27
Earnings (mil) 104.8 36 57.9 183.6 71.5
Earnings Growth (%YOY) 46.57 42.86 96.94 65.11 -18.29
Net Margin (%) 17.87 7.89 10.91 24.68 12.97
EPS 0.52 0.18 0.29 0.92 0.36
Return on Equity (%) 3.02 1.05 1.68 5.43 2.16
Return on Assets (%) 4.08 1.43 2.35 7.55 2.98

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Market Share Versus Profits

Revenues History
Earnings History

OGE-US‘s change in revenue this period compared to the same period last year of 6.35% 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 OGE-US is holding onto its market share. Also, for comparison purposes, revenues changed by 28.60% and earnings by 191.11% 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 47.68% to 49.62% for the same period last year, while operating margins (EBITDA margins) went from 37.21% to 37.36% 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

OGE-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 are now -52.03 days from -41.00 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.

OGE-US‘s change in operating cash flow of 14.90% 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 earnings growth has also been influenced by the following factors: (1) Improvements in operating (EBIT) margins from 22.83% to 24.47% and (2) one-time items. The company’s pretax margins are now 25.82% compared to 20.33% for the same period last year.

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

Access our Ratings and Scores for OGE Energy Corp.

Company Profile

OGE Energy Corp.is a holding company which engages in the offering of physical delivery and related services for both electricity and natural gas primarily in the south central United States. It operates through two business segments: Electric Utility and Natural Gas Midstream Operations. The Electric Utility business segment generates, transmits, distributes and sells electric energy in Oklahoma and Western Arkansas. The Natural Gas Midstream Operations segment engaged in the business of gathering, processing, transporting, storing, and marketing of natural gas. The company was founded in August 1995 and is headquartered in Oklahoma City, OK.

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