Orion Engineered Carbons SA :OEC-US: Earnings Analysis: Q4, 2015 By the Numbers

Orion Engineered Carbons SA reports financial results for the quarter ended December 31, 2015.

We analyze the earnings along side the following peers of Orion Engineered Carbons SA – Methanex Corporation, Calgon Carbon Corporation, Balchem Corporation and Canexus Corporation (MEOH-US, CCC-US, BCPC-US and CXUSF-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 284.97 million, Net Earnings of USD 1.63 million.
  • Gross margins widened from 23.06% to 30.13% compared to the same period last year, operating (EBITDA) margins now 17.47% from 12.63%.
  • Year-on-year change in operating cash flow of -31.00% 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:

2014-12-31 2015-03-31 2015-06-30 2015-09-30 2015-12-31
Relevant Numbers (Quarterly)
Revenues (mil) 395.77 326.47 312.34 309.73 284.97
Revenue Growth (%YOY) N/A -27.9 -33.26 -29.11 -28
Earnings (mil) -10.38 16.58 16.13 13.4 1.63
Earnings Growth (%YOY) N/A 3095.7 282.51 124.79 115.69
Net Margin (%) -2.62 5.08 5.16 4.32 0.57
EPS -0.17 0.28 0.27 0.22 0.02
Return on Equity (%) -44.95 88.7 84.12 83.3 11.64
Return on Assets (%) -3.17 5.51 5.58 4.7 0.59

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Market Share Versus Profits

Revenues History
Earnings History

OEC-US‘s change in revenue this period compared to the same period last year of -28.00% 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 OEC-US is holding onto its market share. Also, for comparison purposes, revenues changed by -7.99% and earnings by -87.84% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Earnings Growth Analysis

The company’s earnings growth was influenced by year-on-year improvement in gross margins from 23.06% to 30.13% as well as better cost controls. As a result, operating margins (EBITDA margins) rose from 12.63% to 17.47% compared to the same period last year. For comparison, gross margins were 26.61% and EBITDA margins were 16.81% in the last reporting period.

Gross Margin Versus EBITDA Margin

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

OEC-US‘s gross margin improvement has not produced any big difference in its working capital. Working capital days are currently 81.77, compared to last year’s level of 76.22 days. This leads Capital Cube to conclude that the improvements in gross margins are likely from operating decisions and not trade-offs with the balance sheet.

Gross Margin Versus Working Capital Days

Cash Versus Earnings – Sustainable Performance?

OEC-US‘s change in operating cash flow of -31.00% 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

Margins

The company’s earnings growth has also been influenced by the following factors: (1) Improvements in operating (EBIT) margins from 6.32% to 9.50% and (2) one-time items. The company’s pretax margins are now 3.11% compared to -0.54% for the same period last year.

EBIT Margin Versus PreTax Margin
EBIT Margin History
PreTax Margin History

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Company Profile

Orion Engineered Carbons SA engages in the production of carbon black. It operates through the Rubber Carbon Black and Specialty Carbon Black segments. The Rubber Carbon Black segment serves the tires and mechanical rubber goods markets. The Specialty Carbon Black segment provides the polymers, printing, coatings and special applications markets with customized, application-driven products. The company was founded on April 13, 2011 and is headquartered in Luxembourg.

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