VSE Corp. :VSEC-US: Earnings Analysis: Q4, 2016 By the Numbers : March 20, 2017

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

We analyze the earnings along side the following peers of VSE Corp. – Kratos Defense & Security Solutions, Inc., Engility Holdings, Inc., KEYW Holding Corporation, Raytheon Company, Lockheed Martin Corporation, Northrop Grumman Corporation, General Dynamics Corporation, Aerojet Rocketdyne Holdings, Inc. and Teledyne Technologies Incorporated (KTOS-US, EGL-US, KEYW-US, RTN-US, LMT-US, NOC-US, GD-US, AJRD-US and TDY-US) that have also reported for this period.


  • Summary numbers: Revenues of USD 214.90 million, Net Earnings of USD 7.18 million.
  • Gross margins narrowed from 10.49% to 7.32% compared to the same period last year, operating (EBITDA) margins now 9.22% from 14.43%.
  • Year-on-year change in operating cash flow of -1.42% 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) 214.9 172.78 160.47 143.64 144.67
Revenue Growth (%YOY) 48.55 25.75 22.38 18.91 52.36
Earnings (mil) 7.18 7.09 5.97 6.55 7.75
Earnings Growth (%YOY) -7.24 9.48 8.94 25.52 76.46
Net Margin (%) 3.34 4.1 3.72 4.56 5.35
EPS 0.66 0.65 0.55 0.61 0.72
Return on Equity (%) 11.4 11.56 9.99 11.26 13.72
Return on Assets (%) 4.42 4.45 3.8 4.22 4.97

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Market Share Versus Profits

Revenues History
Earnings History

VSEC-US‘s change in revenue this period compared to the same period last year of 48.55% 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 VSEC-US is holding onto its market share. Also, for comparison purposes, revenues changed by 24.38% and earnings by 1.35% 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 10.49% to 7.32%, as well as issues with cost controls. As a result, operating margins (EBITDA margins) went from 14.43% to 9.22% in this time frame. For comparison, gross margins were 8.26% and EBITDA margins were 11.79% 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

VSEC-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 have fallen to 47.45 days from 69.56 days for the same period last year. This leads Capital Cube to conclude that the gross margin decline is not altogether bad.

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.

VSEC-US‘s change in operating cash flow of -1.42% 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 10.06% to 6.18% and (2) one-time items that contributed to a decrease in pretax margins from 8.69% to 5.04%

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

VSE Corp. engages in the provision of engineering and technical support services. It operates through the following segments: Supply Chain Management Group; Aviation Group; Federal Services Group; and IT, Energy and Management Consulting Group. The Supply Chain Management Group segment distributes vehicle parts and accessories. The Aviation Group segment offers maintenance, repair, and operations services, supply chain solutions, and engine parts and equipment. The Federal Services Group segment includes engineering, industrial, logistics, and legacy equipment sustainment services. The IT, Energy and Management Consulting Group segment provides technical and advisory services to government agencies. The company was founded on January 22, 1959 and is headquartered in Alexandria, VA.

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