Stanley Electric Co., Ltd. :STAEF-US: Earnings Analysis: Q3, 2017 By the Numbers : March 13, 2017

Stanley Electric Co., Ltd. reports financial results for the quarter ended December 31, 2016.

We analyze the earnings along side the following peers of Stanley Electric Co., Ltd. – Sevcon, Inc. and Standard Motor Products, Inc. (SEV-US and SMP-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 949.04 million, Net Earnings of USD 75.06 million.
  • Gross margins widened from 20.49% to 22.16% compared to the same period last year, operating (EBITDA) margins now 19.98% from 16.68%.
  • 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:

2016-12-31 2016-09-30 2016-06-30 2016-03-31 2015-12-31
Relevant Numbers (Quarterly)
Revenues (mil) 949.04 869.01 843.29 830.46 877.19
Revenue Growth (%YOY) 8.19 6.71 -0.1 3.07 7.75
Earnings (mil) 75.06 59.37 44.15 72.53 59.61
Earnings Growth (%YOY) 25.92 88.74 -12.16 28.31 5.65
Net Margin (%) 7.91 6.83 5.23 8.73 6.8
EPS 0.45 0.36 0.27 0.43 0.36
Return on Equity (%) 9.98 7.87 6.07 10.29 8.66
Return on Assets (%) 7.49 5.88 4.48 7.66 6.5

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Market Share Versus Profits

Revenues History
Earnings History

STAEF-US‘s change in revenue this period compared to the same period last year of 8.19% 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 STAEF-US is holding onto its market share. Also, for comparison purposes, revenues changed by 9.21% and earnings by 26.43% 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 growth was influenced by year-on-year improvement in gross margins from 20.49% to 22.16% as well as better cost controls. As a result, operating margins (EBITDA margins) rose from 16.68% to 19.98% compared to the same period last year. For comparison, gross margins were 21.16% and EBITDA margins were 18.09% in the last reporting 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

STAEF-US‘s gross margin improvement has not produced any big difference in its working capital. Working capital days are currently 115.20, compared to last year’s level of 112.63 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 company’s earnings growth has also been influenced by the following factors: (1) Improvements in operating (EBIT) margins from 10.27% to 11.35% and (2) one-time items. The company’s pretax margins are now 12.27% compared to 11.00% 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

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Company Profile

Stanley Electric Co., Ltd. engages in the manufacture and sale of automotive equipment, semiconductors, and electronic equipment. It operates through the following segments: Automotive Equipment, Electronic Components, Applied Electronic Products, and Others. The Automotive Equipment segment manufactures automotive lighting products for automobile companies. The Electronic Components segment produces electronic devices for electric and automobile components suppliers. The Applied Electronic Products segment manufactures customized units and modules such as backlight units for liquid crystal displays, flash units, and operation panels. The Others segment provides employment promotions for persons with disabilities; financial management to the group; and development, manufacture and sale of mold designs. The company was founded by Takaharu Kitano on December 29, 1920 and is headquartered in Tokyo, Japan.

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