Tecnoglass, Inc. :TGLS-US: Earnings Analysis: Q1, 2016 By the Numbers : June 1, 2016

Tecnoglass, Inc. reports financial results for the quarter ended March 31, 2016.

We analyze the earnings along side the following peers of Tecnoglass, Inc. – Ply Gem Holdings, Inc., PGT, Inc., Masonite International Corp., PPG Industries, Inc. and Huttig Building Products, Inc. (PGEM-US, PGTI-US, DOOR-US, PPG-US and HBP-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 60.78 million, Net Earnings of USD 13.14 million.
  • Gross margins widened from 33.02% to 37.96% compared to the same period last year, operating (EBITDA) margins now 24.23% from 20.18%.
  • Year-on-year change in operating cash flow of -290.02% 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:

2015-03-31 2015-06-30 2015-09-30 2015-12-31 2016-03-31
Relevant Numbers (Quarterly)
Revenues (mil) 52.04 58.05 62.89 66.4 60.78
Revenue Growth (%YOY) 0 0 0 50.16 16.79
Earnings (mil) 9.88 -11.35 7.58 -0.55 13.14
Earnings Growth (%YOY) 5088.07 -2014.46 319.68 -104.1 32.93
Net Margin (%) 18.99 -19.55 12.06 -0.82 21.61
EPS 0.35 -0.45 0.25 -0.02 0.45
Return on Equity (%) 50.92 -61.26 46.7 -3.38 89.96
Return on Assets (%) 14.98 -15.76 10.13 -0.71 14.87

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Market Share Versus Profits

Revenues History
Earnings History

TGLS-US‘s change in revenue this period compared to the same period last year of 16.79% 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 TGLS-US is holding onto its market share. Also, for comparison purposes, revenues changed by -8.46% and earnings by 2,501.28% 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 33.02% to 37.96% as well as better cost controls. As a result, operating margins (EBITDA margins) rose from 20.18% to 24.23% compared to the same period last year. For comparison, gross margins were 42.52% and EBITDA margins were 22.67% 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

TGLS-US‘s improvement in gross margin has been accompanied by an improvement in its balance sheet as well. This suggests that gross margin improvements are likely from operating decisions and not accounting gimmicks. Its working capital days have declined to 24.71 days from 43.54 days for the same period last year.

Gross Margin Versus Working Capital Days

Cash Versus Earnings – Sustainable Performance?

TGLS-US‘s change in operating cash flow of -290.02% 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 15.38% to 18.87% and (2) one-time items. The company’s pretax margins are now 28.44% compared to 28.16% for the same period last year.

EBIT Margin Versus PreTax Margin
EBIT Margin History
PreTax Margin History

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Company Profile

Tecnoglass, Inc. operates as a holding company, which engages in the manufacture and sale of architectural glass for residential and commercial use. Its products include the following types of glass: laminated, thermo-laminated, tempered, silk-screened, curved, and digital print. Tecnoglass also distributes floating facades, bathroom dividers, automatic doors, and hurricane-proof and commercial display windows. It operates under the Alutions by TG and Alutions trademarks. The company was founded on September 21, 2011 and is headquartered in Barranquilla, Colombia.

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