Are Breville Group's (ASX:BRG) Statutory Earnings A Good Reflection Of Its Earnings Potential?

By
Simply Wall St
Published
October 27, 2020
ASX:BRG

Broadly speaking, profitable businesses are less risky than unprofitable ones. 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 Breville Group (ASX:BRG).

It's good to see that over the last twelve months Breville Group made a profit of AU$66.2m on revenue of AU$952.2m. In the chart below, you can see that its profit and revenue have both grown over the last three years.

See our latest analysis for Breville Group

earnings-and-revenue-history
ASX:BRG Earnings and Revenue History October 27th 2020

Of course, when it comes to statutory profit, the devil is often in the detail, and we can get a better sense for a company by diving deeper into the financial statements. In this article we'll look at how Breville Group is impacting shareholders by issuing new shares. 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.

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. In fact, Breville Group increased the number of shares on issue by 6.6% over the last twelve months by issuing new shares. That means its earnings are split among a greater number of shares. To celebrate net income while ignoring dilution is like rejoicing because you have a single slice of a larger pizza, but ignoring the fact that the pizza is now cut into many more slices. Check out Breville Group's historical EPS growth by clicking on this link.

A Look At The Impact Of Breville Group's Dilution on Its Earnings Per Share (EPS).

As you can see above, Breville Group has been growing its net income over the last few years, with an annualized gain of 23% over three years. However, net income was pretty flat over the last year with a miniscule decrease. In contrast, earnings per share are actually down a full 2.6%, over the last twelve months. So you can see that the dilution has had a bit of an impact on shareholders. Therefore, the dilution is having a noteworthy influence on shareholder returns. And so, you can see quite clearly that dilution is influencing shareholder earnings.

In the long term, if Breville Group's earnings per share can increase, then the share price should too. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. For the ordinary retail shareholder, EPS is a great measure to check your hypothetical "share" of the company's profit.

Our Take On Breville Group's Profit Performance

Breville Group issued shares during the year, and that means its EPS performance lags its net income growth. Because of this, we think that it may be that Breville Group's statutory profits are better than its underlying earnings power. Nonetheless, it's still worth noting that its earnings per share have grown at 22% 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 - Breville Group has 1 warning sign we think you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Breville Group'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.

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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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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