STRABAG SE :SBAGY-US: Earnings Analysis: Q3, 2017 By the Numbers : January 4, 2018

STRABAG SE reports financial results for the quarter ended September 30, 2017.

Highlights

  • Summary numbers: Revenues of USD 4,385.08 million, Net Earnings of USD 158.79 million.
  • Gross margins narrowed from 7.89% to 7.33% compared to the same period last year, operating (EBITDA) margins now 6.89% from 6.62%.
  • Change in operating cash flow of 111.12% compared to same period last year is about the same as 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:

2017-09-30 2017-06-30 2017-03-31 2016-12-31 2016-09-30
Relevant Numbers (Quarterly)
Revenues (mil) 4385.08 3846.14 2368.39 3706.36 4056.39
Revenue Growth (%YOY) 8.1 7.41 1.12 -6 -2.5
Earnings (mil) 158.79 68.54 -130.33 185.54 144.69
Earnings Growth (%YOY) 9.75 -33.67 -1.03 75.02 14.1
Net Margin (%) 3.62 1.78 -5.5 5.01 3.57
EPS 0.31 0.13 -0.25 0.36 0.28
Return on Equity (%) 4.27 1.97 -3.82 5.38 4.31
Return on Assets (%) 5.19 2.42 -4.77 6.55 5.13

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Market Share Versus Profits

Revenues History
Earnings History

Compared to the same period last year, SBAGY-US’s change in revenue was close to the amount of its change in earnings. It remains to be seen how the rest of its peer group’s results will turn out and if SBAGY-US’s performance is a sign of any major shift in the composition of market share in this sector. Also, for comparison purposes, revenues changed by 14.01% and earnings by 131.69% compared to the previous period.

Earnings Growth Analysis

The company’s gross margins showed no year-on-year improvement. In spite of this, the company’s earnings rose, influenced primarily by the improvement in operating margins (EBITDA margins) from 6.62% to 6.89%. For comparison, gross margins were 5.72% and EBITDA margins were 4.79% in the last period.

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

SBAGY-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 27.83 days from 30.63 days for the same period last year. This leads Capital Cube to conclude that the gross margin decline is not altogether bad.

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

SBAGY-US’s year-on-year change in operating cash flow of 111.12% is around its change in earnings. This suggests that there are likely no significant movement in accruals or reserves for managing earnings this period.

Margins

The company’s earnings growth has also been influenced by the following factors: (1) Improvements in operating (EBIT) margins from 3.95% to 4.35% and (2) one-time items. The company’s pretax margins are now 4.68% compared to 4.05% for the same period last year.

EBIT Margin History
PreTax Margin History

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Company Profile

STRABAG SE engages in the construction business. It operates its business through four segments: North + West, South + East, International + Special Divisions, and Other. The North + West segment engages in the construction activities in Germany, Poland, Benelux, and Scandinavia as well as the ground engineering, hydraulic engineering, and offshore wind activities. The South + East segment comprises the railway structures activities as well as the construction activities in Austria, Switzerland, Hungary, Czech Republic, Slovakia, Adriatic, Rest of Europe and Russia and neighboring countries, and environmental technology. The International + Special segment includes the international construction activities, tunneling, services, real estate development, and infrastructure development as well as the construction materials business. The Other segment includes services in the areas of accounting, group financing, technical development, machine management, quality management, logistics, legal affairs, and contract management. The company was founded in 1895 and is headquartered in Villach, Austria.

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