BAE Systems plc (LON:BA.): Does The -6.46% Earnings Drop Reflect A Longer Term Trend?

Measuring BAE Systems plc's (LSE:BA.) track record of past performance is a valuable exercise for investors. It allows us to understand whether or not the company has met or exceed expectations, which is an insightful signal for future performance. Today I will assess BA.'s recent performance announced on 31 December 2017 and compare these figures to its historical trend and industry movements. View our latest analysis for BAE Systems

Was BA.'s weak performance lately a part of a long-term decline?

I prefer to use data from the most recent 12 months, which either annualizes the most recent 6-month earnings update, or in some cases, the most recent annual report is already the latest available financial data. This blend allows me to examine many different companies on a more comparable basis, using new information. For BAE Systems, its latest earnings (trailing twelve month) is UK£854.00M, which, relative to the prior year's figure, has dropped by -6.46%. Since these figures are somewhat short-term thinking, I’ve calculated an annualized five-year value for BAE Systems's earnings, which stands at UK£814.38M This means that even though earnings declined against last year, in the long run, BAE Systems's earnings have been growing on average.

What's enabled this growth? Let's see whether it is only owing to industry tailwinds, or if BAE Systems has experienced some company-specific growth. Over the last few years, BAE Systems top-line expansion has outstripped earnings and the growth rate of expenses. Though this has led to a margin contraction, it has moderated BAE Systems's earnings contraction. Looking at growth from a sector-level, the UK aerospace & defense industry has been growing its average earnings by double-digit 25.27% over the prior year, . This is a turnaround from a volatile drop of -4.01% in the past couple of years. This suggests that, in the recent industry expansion, BAE Systems has not been able to reap as much as its average peer.

What does this mean?

BAE Systems's track record can be a valuable insight into its earnings performance, but it certainly doesn't tell the whole story. Companies that are profitable, but have capricious earnings, can have many factors influencing its business. I recommend you continue to research BAE Systems to get a more holistic view of the stock by looking at:

1. Future Outlook: What are well-informed industry analysts predicting for BA.’s future growth? Take a look at our free research report of analyst consensus for BA.’s outlook.
2. Financial Health: Is BA.’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 31 December 2017. This may not be consistent with full year annual report figures.

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article 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.