Has Smurfit Kappa Group plc's (ISE:SK3) Earnings Momentum Changed Recently?

Assessing Smurfit Kappa Group plc's (ISE:SK3) past track record of performance is a useful exercise for investors. It allows us to understand whether the company has met or exceed expectations, which is a great indicator for future performance. Below, I assess SK3's latest performance announced on 31 December 2017 and evaluate these figures to its historical trend and industry movements.

Check out our latest analysis for Smurfit Kappa Group

Did SK3 perform worse than its track record and industry?

SK3's trailing twelve-month earnings (from 31 December 2017) of €417.00m has declined by -6.08% 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 14.79%, indicating the rate at which SK3 is growing has slowed down. What could be happening here? Well, let’s take a look at what’s occurring with margins and whether the rest of the industry is facing the same headwind.

In the last few years, revenue growth has failed to keep up which suggests that Smurfit Kappa Group’s bottom line has been driven by unsustainable cost-cutting. Eyeballing growth from a sector-level, the IE packaging industry has been growing, albeit, at a muted single-digit rate of 8.82% over the previous year, and a substantial 12.03% over the past five years. Since the sector in is relatively small, I’ve included similar companies in the wider region in order to get a better idea of the growth, which is a median of profitable companies of companies such as , and . This means any uplift the industry is enjoying, Smurfit Kappa Group has not been able to reap as much as its industry peers.

In terms of returns from investment, Smurfit Kappa Group has not invested its equity funds well, leading to a 15.91% return on equity (ROE), below the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 6.51% is below the IE Packaging industry of 7.10%, indicating Smurfit Kappa Group's are utilized less efficiently. However, its return on capital (ROC), which also accounts for Smurfit Kappa Group’s debt level, has increased over the past 3 years from 9.01% to 9.64%. This correlates with a decrease in debt holding, with debt-to-equity ratio declining from 132.98% to 126.14% over the past 5 years.

What does this mean?

Though Smurfit Kappa Group's past data is helpful, it is only one aspect of my investment thesis. Companies that are profitable, but have unpredictable earnings, can have many factors affecting its business. You should continue to research Smurfit Kappa Group to get a more holistic view of the stock by looking at:

1. Future Outlook: What are well-informed industry analysts predicting for SK3’s future growth? Take a look at our free research report of analyst consensus for SK3’s outlook.
2. Financial Health: Is SK3’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.

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.

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.