SemGroup Corp. :SEMG-US: Earnings Analysis: 2016 By the Numbers : March 1, 2017

SemGroup Corp. reports financial results for the year ended December 31, 2016.

We analyze the earnings along side the following peers of SemGroup Corp. – Plains All American Pipeline, L.P., Magellan Midstream Partners, L.P., Plains GP Holdings LP Class A, Holly Energy Partners, L.P., NGL Energy Partners LP, Phillips 66 Partners LP, Enbridge Energy Partners, L.P. Class A and DCP Midstream LP (PAA-US, MMP-US, PAGP-US, HEP-US, NGL-US, PSXP-US, EEP-US and DCP-US) that have also reported for this period.

Highlights

  • Gross margins widened from 9.94% to 11.10% compared to the same period last year, operating (EBITDA) margins now 12.22% from 10.19%.
  • One-time items weakened operating performance.

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

2016 2015 2014 2013 2012
Relevant Numbers (Annual)
Revenues 1332.16 1448.96 2103.27 1428.61 1237.35
Revenue Growth (YOY) N/A N/A N/A N/A N/A
Earnings 2.1 30.32 29.24 48.04 19.16
Earnings Growth (YOY) -93.09 3.7 -39.14 150.73 702.72
Net Margin 0.16 2.09 1.39 3.36 1.55
EPS 0.04 0.69 0.68 1.13 0.52
Return on Equity 0.16 2.51 2.4 4.3 1.92
Return on Assets 0.07 1.11 1.16 2.28 1.18

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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 9.94% to 11.10%, while operating margins improved from 10.19% to 12.22% over this period. For comparison, gross margins were 9.94% and EBITDA margins 10.19% 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

SEMG-US‘s gross margin improvement has not produced any big difference in its working capital. Working capital days are currently 34.37, compared to last year’s level of 24.05 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

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich

Margins

The expansion in operating (EBIT) margins from 3.22% to 4.80% has also impacted the company’s earnings growth. However, one-time items have been a drag on the operating performance. As a result, the company’s pretax margins contracted from 5.27% to 1.84%.

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

SemGroup Corp. engages in gathering, transporting, and trading of petroleum products. It operates through the following segments: Crude Transportation; Crude Facilities; Crude Supply and Logistics; SemGas; SemCAMS; SemLogistics; SemMexico; and SemStream. The Crude Transportation segment manages oil pipelines and truck transportation services. The Crude Facilities segment stores oil products and operates terminal businesses. The Crude Supply and Logistics segment markets and distributes crude oil products. The SemGas segment includes natural gas gathering and processing. The SemCAMS segment operates processing plants of natural gas. The SemLogistics segment manages storage facilities of petroleum products. The SemMexico segment manufactures and sells liquid asphalt cement and asphalt materials. The SemStream segment holds interest in NGL Energy Partners LP. The company was founded in February 2000 and is headquartered in Tulsa, OK.

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