Was FLSmidth & Co A/S’s (CPH:FLS) Earnings Decline Part Of A Broader Industry Downturn?

When FLSmidth & Co A/S (CPH:FLS) released its most recent earnings update (30 September 2018), I wanted to understand how these figures stacked up against its past performance. The two benchmarks I used were FLSmidth’s average earnings over the past couple of years, and its industry performance. These are useful yardsticks to help me gauge whether or not FLS actually performed well. Below is a quick commentary on how I see FLS has performed.

Check out our latest analysis for FLSmidth

Was FLS’s recent earnings decline worse than the long-term trend and the industry?

FLS’s trailing twelve-month earnings (from 30 September 2018) of ø554m has declined by -6.1% compared to the previous year.

Furthermore, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 25%, indicating the rate at which FLS is growing has slowed down. Why is this? Let’s examine what’s transpiring with margins and if the whole industry is feeling the heat.

CPSE:FLS Income Statement Export November 9th 18
CPSE:FLS Income Statement Export November 9th 18

In terms of returns from investment, FLSmidth has fallen short of achieving a 20% return on equity (ROE), recording 6.9% instead. Furthermore, its return on assets (ROA) of 1.0% is below the DK Construction industry of 4.1%, indicating FLSmidth’s are utilized less efficiently. However, its return on capital (ROC), which also accounts for FLSmidth’s debt level, has increased over the past 3 years from 8.7% to 10%. This correlates with a decrease in debt holding, with debt-to-equity ratio declining from 76% to 38% over the past 5 years.

What does this mean?

FLSmidth’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. Generally companies that endure a drawn out period of diminishing earnings are undergoing some sort of reinvestment phase in order to keep up with the recent industry disruption and expansion. I suggest you continue to research FLSmidth to get a more holistic view of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for FLS’s future growth? Take a look at our free research report of analyst consensus for FLS’s outlook.
  2. Financial Health: Are FLS’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

NB: Figures in this article are calculated using data from the trailing twelve months from 30 September 2018. This may not be consistent with full year annual report figures.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.