Wacker Neuson SE :WAC-DE: Earnings Analysis: Q1, 2016 By the Numbers : May 25, 2016

Wacker Neuson SE reports financial results for the quarter ended March 31, 2016.

We analyze the earnings along side the following peers of Wacker Neuson SE – BAUER AG, Tesmec S.p.A. and Caterpillar Inc. (B5A-DE, TES-IT and CAT1-DE) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of EUR 316.42 million, Net Earnings of EUR 11.15 million.
  • Gross margins narrowed from 29.74% to 27.49% compared to the same period last year, operating (EBITDA) margins now 7.98% from 10.50%.
  • Year-on-year change in operating cash flow of 70.41% 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:

2015-03-31 2015-06-30 2015-09-30 2015-12-31 2016-03-31
Relevant Numbers (Quarterly)
Revenues (mil) 324.33 382.1 310.98 357.93 316.42
Revenue Growth (%YOY) 11.23 16.35 -1.64 2.82 -2.44
Earnings (mil) 21.34 23.88 8.52 12.42 11.15
Earnings Growth (%YOY) 49.19 -15.34 -67.79 -44.9 -47.76
Net Margin (%) 6.58 6.25 2.74 3.47 3.52
EPS 0.3 0.34 0.12 0.18 0.16
Return on Equity (%) 8.18 9.01 3.25 4.69 4.17
Return on Assets (%) 5.58 5.95 2.13 3.15 2.83

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Market Share Versus Profits

Revenues History
Earnings History

WAC-DE‘s change in revenue this period compared to the same period last year of -2.44% 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 WAC-DE is holding onto its market share. Also, for comparison purposes, revenues changed by -11.60% and earnings by -10.25% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Earnings Growth Analysis

The company’s year-on-year decline in earnings was influenced by a weakening in gross margins from 29.74% to 27.49%, as well as issues with cost controls. As a result, operating margins (EBITDA margins) went from 10.50% to 7.98% in this time frame. For comparison, gross margins were 25.31% and EBITDA margins were 9.30% in the previous 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

WAC-DE‘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 108.13 days from 120.03 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

Cash Versus Earnings – Sustainable Performance?

WAC-DE‘s change in operating cash flow of 70.41% 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 decline in earnings has been influenced by the following factors: (1) Decline in operating margins (EBIT margins) from 5.66% to 2.69% and (2) one-time items that contributed to a decrease in pretax margins from 9.30% to 4.96%

EBIT Margin Versus PreTax Margin
EBIT Margin History
PreTax Margin History

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Company Profile

Wacker Neuson SE is a holding company, which engages in the manufacture of light and compact equipment. It operates through the following segments: Light Equipment, Compact Equipment and Services. The Light Equipment segment produces machines for concrete technology, compaction and worksite technology. The Compact Equipment segment manufactures machines such as excavators, wheel loaders, telescopic handlers, skid steer loaders and dumpers. The Services segment provides rental, parts repair, maintenance, financing and 24 hour services. The company was founded on October 31, 2007 and is headquartered in Munich, Germany.

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