The AES Corp. :AES-US: Earnings Analysis: Q4, 2016 By the Numbers : February 28, 2017

The AES Corp. reports financial results for the quarter ended December 31, 2016.

We analyze the earnings along side the following peers of The AES Corp. – Dominion Resources, Inc., Duke Energy Corporation, American Electric Power Company, Inc. and SunPower Corporation (D-US, DUK-US, AEP-US and SPWR-US) that have also reported for this period.


  • Summary numbers: Revenues of USD 3544 million, Net Earnings of USD -200 million.
  • Gross margins narrowed from 21.12% to 18.68% compared to the same period last year, operating (EBITDA) margins now 25.45% from 27.53%.
  • Year-on-year change in operating cash flow of 11.61% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Narrowing of operating margins contributed to decline in earnings.

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) 3544 3522 3197 3429 3400
Revenue Growth (%YOY) 4.24 -5.09 -16.9 -13.93 -17.72
Earnings (mil) -200 171 -103 126 -85
Earnings Growth (%YOY) -135.29 -5 -249.28 -11.27 -141.26
Net Margin (%) -5.64 4.86 -3.22 3.67 -2.5
EPS -1.44 0.26 -0.73 0.19 -0.13
Return on Equity (%) -12.28 10.55 -6.2 7.43 -5.16
Return on Assets (%) -2.18 1.85 -1.12 1.37 -0.92

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Market Share Versus Profits

Revenues History
Earnings History

AES-US‘s change in revenue this period compared to the same period last year of 4.24% 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 AES-US is holding onto its market share. Also, for comparison purposes, revenues changed by 0.62% and earnings by -216.96% 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 year-on-year decline in earnings was influenced by a weakening in gross margins from 21.12% to 18.68%, as well as issues with cost controls. As a result, operating margins (EBITDA margins) went from 27.53% to 25.45% in this time frame. For comparison, gross margins were 19.45% and EBITDA margins were 26.58% in the previous 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

AES-US‘s decline in gross margins has not produced any significant offsetting improvement in its working capital . This leads Capital Cube to conclude that the decline in gross margins are likely from operating issues and not trade-offs with the balance sheet. Working capital days are currently 34.92 days, compared to last year’s level of 8.03 days.

Gross Margin Versus Working Capital Days

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich

Cash Versus Earnings – Sustainable Performance?

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

AES-US‘s change in operating cash flow of 11.61% 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

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings


The company’s decline in earnings has been influenced by the following factors: (1) Decline in operating margins (EBIT margins) from 19.76% to 17.01% and (2) one-time items that contributed to a decrease in pretax margins from 6.97% to -8.69%

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

The AES Corp. operates as a power generation and utility company. The company is organized into six market-oriented Strategic Business units (SBUs): United States, Andes (Chile, Colombia, and Argentina), Brazil, MCAC (Mexico, Central America and Caribbean), EMEA (Europe, Middle East and Africa) and Asia. The six SBUs operate into two lines of business. The first business line is generation, where it owns and/or operates power plants to generate and sell power to customers, such as utilities, industrial users, and other intermediaries. The second business line is utilities, where it owns and/or operates utilities to generate or purchase, distribute, transmit and sell electricity to end-user customers in the residential, commercial, industrial and governmental sectors within a defined service area. The company was founded by Dennis W. Bakke and Roger W. Sant in 1981 and is headquartered in Arlington, VA.

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