Should You Use Fortune Brands Home & Security’s (NYSE:FBHS) Statutory Earnings To Analyse It?

It might be old fashioned, but we really like to invest in companies that make a profit, each and every year. Having said that, sometimes statutory profit levels are not a good guide to ongoing profitability, because some short term one-off factor has impacted profit levels. In this article, we’ll look at how useful this year’s statutory profit is, when analysing Fortune Brands Home & Security (NYSE:FBHS).

It’s good to see that over the last twelve months Fortune Brands Home & Security made a profit of US$413.0m on revenue of US$5.71b. Happily, it has grown both its profit and revenue over the last three years (though we note its profit is down over the last year).

See our latest analysis for Fortune Brands Home & Security

NYSE:FBHS Income Statement, December 31st 2019
NYSE:FBHS Income Statement, December 31st 2019

Importantly, statutory profits are not always the best tool for understanding a company’s true earnings power, so it’s well worth examining profits in a little more detail. This article will discuss how unusual items have impacted Fortune Brands Home & Security’s most recent profit results. That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

The Impact Of Unusual Items On Profit

To properly understand Fortune Brands Home & Security’s profit results, we need to consider the US$95m expense attributed to unusual items. It’s never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that’s hardly a surprise given these line items are considered unusual. Assuming those unusual expenses don’t come up again, we’d therefore expect Fortune Brands Home & Security to produce a higher profit next year, all else being equal.

Our Take On Fortune Brands Home & Security’s Profit Performance

Unusual items (expenses) detracted from Fortune Brands Home & Security’s earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Fortune Brands Home & Security’s statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at 16% per year over the last three years. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company’s potential, but there is plenty more to consider. While it’s really important to consider how well a company’s statutory earnings represent its true earnings power, it’s also worth taking a look at what analysts are forecasting for the future. So feel free to check out our free graph representing analyst forecasts.

Today we’ve zoomed in on a single data point to better understand the nature of Fortune Brands Home & Security’s profit. But there are plenty of other ways to inform your opinion of a company. Some people consider a high return on equity to be a good sign of a quality business. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying to be useful.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

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