In this article, I will take a look at Fletcher Building Limited’s (NZSE:FBU) most recent earnings update (30 June 2017) and compare these latest figures against its performance over the past few years, along with how the rest of FBU’s industry performed. As a long-term investor, I find it useful to analyze the company’s trend over time in order to estimate whether or not the company is able to meet its goals, and eventually grow sustainably over time. View our latest analysis for Fletcher Building
Was FBU’s recent earnings decline indicative of a tough track record?
I look at the ‘latest twelve-month’ data, which annualizes the latest 6-month earnings release, or some times, the latest annual report is already the most recent financial data. This method enables me to assess many different companies on a similar basis, using the latest information. For Fletcher Building, its latest trailing-twelve-month earnings is NZ$94.00M, which, against the previous year’s level, has plunged by a substantial -79.65%. Given that these values may be relatively nearsighted, I’ve calculated an annualized five-year figure for FBU’s earnings, which stands at NZ$298.58M This doesn’t look much better, since earnings seem to have gradually been declining over time.Why is this? Well, let’s take a look at what’s transpiring with margins and if the rest of the industry is experiencing the hit as well. Over the last few years, revenue growth has not been able to catch up, which implies that Fletcher Building’s bottom line has been driven by unmaintainable cost-reductions. Eyeballing growth from a sector-level, the NZ basic materials industry has been growing its average earnings by double-digit 12.84% in the past year, and a less exciting 5.38% over the past half a decade. This shows that any tailwind the industry is profiting from, Fletcher Building has not been able to leverage it as much as its industry peers.
What does this mean?
Though Fletcher Building’s past data is helpful, it is only one aspect of my investment thesis. Generally companies that face a prolonged period of diminishing earnings are undergoing some sort of reinvestment phase with the aim of keeping up with the recent industry expansion and disruption. You should continue to research Fletcher Building to get a more holistic view of the stock by looking at:
- 1. Future Outlook: What are well-informed industry analysts predicting for FBU’s future growth? Take a look at our free research report of analyst consensus for FBU’s outlook.
- 2. Financial Health: Is FBU’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.