There May Be Underlying Issues With The Quality Of Fraser & Neave Holdings Bhd's (KLSE:F&N) Earnings

Despite announcing strong earnings, Fraser & Neave Holdings Bhd's (KLSE:F&N) stock was sluggish. We did some digging and found some worrying underlying problems.

View our latest analysis for Fraser & Neave Holdings Bhd

How Do Unusual Items Influence Profit?

To properly understand Fraser & Neave Holdings Bhd's profit results, we need to consider the RM88m gain attributed to unusual items. 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 that's as you'd expect, given these boosts are described as 'unusual'. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On Fraser & Neave Holdings Bhd's Profit Performance

We'd posit that Fraser & Neave Holdings Bhd's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Therefore, it seems possible to us that Fraser & Neave Holdings Bhd's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 41% per annum growth in EPS for the last three. 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. Ultimately, this article has formed an opinion based on historical data. However, it can also be great to think about what analysts are forecasting for the future. Luckily, you can check out what analysts are forecasting by clicking here.

This note has only looked at a single factor that sheds light on the nature of Fraser & Neave Holdings Bhd's profit. 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.