KKO International's (EPA:ALKKO) Attractive Earnings Are Not All Good News For Shareholders

Investors were disappointed with KKO International SA's (EPA:ALKKO) recent earnings release. We did some digging and found some underlying numbers that are worrying.

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To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. As it happens, KKO International issued 17% more new shares over the last year. As a result, its net income is now split between a greater number of shares. To talk about net income, without noticing earnings per share, is to be distracted by the big numbers while ignoring the smaller numbers that talk to per share value. You can see a chart of KKO International's EPS by clicking here.

A Look At The Impact Of KKO International's Dilution On Its Earnings Per Share (EPS)

Three years ago, KKO International lost money. And even focusing only on the last twelve months, we don't have a meaningful growth rate because it made a loss a year ago, too. But mathematics aside, it is always good to see when a formerly unprofitable business come good (though we accept profit would have been higher if dilution had not been required). And so, you can see quite clearly that dilution is influencing shareholder earnings.

In the long term, if KKO International'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.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of KKO International.

The Impact Of Unusual Items On Profit

Finally, we should also consider the fact that unusual items boosted KKO International's net profit by €2.8m over the last year. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And, after all, that's exactly what the accounting terminology implies. We can see that KKO International's positive unusual items were quite significant relative to its profit in the year to December 2024. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Our Take On KKO International's Profit Performance

In its last report KKO International benefitted from unusual items which boosted its profit, which could make the profit seem better than it really is on a sustainable basis. And furthermore, it went and issued plenty of new shares, ensuring that each shareholder (who did not tip more money in) now owns a smaller proportion of the company. Considering all this we'd argue KKO International's profits probably give an overly generous impression of its sustainable level of profitability. If you want to do dive deeper into KKO International, you'd also look into what risks it is currently facing. To help with this, we've discovered 5 warning signs (1 makes us a bit uncomfortable!) that you ought to be aware of before buying any shares in KKO International.

Our examination of KKO International has focussed on certain factors that can make its earnings look better than they are. And, on that basis, we are somewhat skeptical. 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.