Many investors consider it preferable to invest in profitable companies over unprofitable ones, because profitability suggests a business is sustainable. That said, the current statutory profit is not always a good guide to a company’s underlying profitability. Today we’ll focus on whether this year’s statutory profits are a good guide to understanding Sonoco Products (NYSE:SON).
While Sonoco Products was able to generate revenue of US$5.37b in the last twelve months, we think its profit result of US$291.8m was more important. As shown in the chart below, it did manage to grow its revenue over the last three years, although its profit has been pretty flat.
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 focus on the impact unusual items have had on Sonoco Products’s statutory earnings. 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 Sonoco Products’s profit results, we need to consider the US$69m 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. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that’s exactly what the accounting terminology implies. Assuming those unusual expenses don’t come up again, we’d therefore expect Sonoco Products to produce a higher profit next year, all else being equal.
Our Take On Sonoco Products’s Profit Performance
Because unusual items detracted from Sonoco Products’s earnings over the last year, you could argue that we can expect an improved result in the current quarter. Based on this observation, we consider it likely that Sonoco Products’s statutory profit actually understates its earnings potential! And we are pleased to note that EPS is at least heading in the right direction over the last three years. Of course, we’ve only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. Keep in mind, when it comes to analysing a stock it’s worth noting the risks involved. For example – Sonoco Products has 2 warning signs we think you should be aware of.
This note has only looked at a single factor that sheds light on the nature of Sonoco Products’s profit. But there is always more to discover if you are capable of focussing your mind on minutiae. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to ‘follow the money’ and search out stocks that insiders are buying. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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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