Hokkaido Coca-Cola BottlingLtd's (TSE:2573) Promising Earnings May Rest On Soft Foundations

Hokkaido Coca-Cola Bottling Co.,Ltd. (TSE:2573) announced strong profits, but the stock was stagnant. We did some digging, and we found some concerning factors in the details.

Check out our latest analysis for Hokkaido Coca-Cola BottlingLtd

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Hokkaido Coca-Cola BottlingLtd's profit received a boost of JP¥207m in unusual items, 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. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And that's as you'd expect, given these boosts are described as 'unusual'. If Hokkaido Coca-Cola BottlingLtd doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Hokkaido Coca-Cola BottlingLtd.

Our Take On Hokkaido Coca-Cola BottlingLtd's Profit Performance

Arguably, Hokkaido Coca-Cola BottlingLtd's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Hokkaido Coca-Cola BottlingLtd's true underlying earnings power is actually less than its statutory profit. But the happy news is that, while acknowledging we have to look beyond the statutory numbers, those numbers are still improving, with EPS growing at a very high rate over the last year. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. Case in point: We've spotted 1 warning sign for Hokkaido Coca-Cola BottlingLtd you should be aware of.

This note has only looked at a single factor that sheds light on the nature of Hokkaido Coca-Cola BottlingLtd's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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 that insiders are buying.

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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.