Investors Can Find Comfort In Saputo's (TSE:SAP) Earnings Quality

Investors were disappointed with the weak earnings posted by Saputo Inc. (TSE:SAP ). While the headline numbers were soft, we believe that investors might be missing some encouraging factors.

View our latest analysis for Saputo

How Do Unusual Items Influence Profit?

For anyone who wants to understand Saputo's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CA$346m due to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. 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 Saputo to produce a higher profit next year, all else being equal.

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.

Our Take On Saputo's Profit Performance

Because unusual items detracted from Saputo's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Because of this, we think Saputo's earnings potential is at least as good as it seems, and maybe even better! Unfortunately, though, its earnings per share actually fell back over the last year. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. You'd be interested to know, that we found 4 warning signs for Saputo and you'll want to know about them.

This note has only looked at a single factor that sheds light on the nature of Saputo'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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.