Weak Statutory Earnings May Not Tell The Whole Story For Auckland International Airport (NZSE:AIA)

Last week's earnings announcement from Auckland International Airport Limited (NZSE:AIA) was disappointing to investors, with a sluggish profit figure. Our analysis has found some reasons to be concerned, beyond the weak headline numbers.

Check out our latest analysis for Auckland International Airport

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. Auckland International Airport expanded the number of shares on issue by 14% over the last year. Therefore, each share now receives a smaller portion of profit. To talk about net income, without noticing earnings per share, is to be distracted by the big numbers while ignoring the smaller numbers that talk to per share value. You can see a chart of Auckland International Airport's EPS by clicking here.

A Look At The Impact Of Auckland International Airport's Dilution On Its Earnings Per Share (EPS)

Unfortunately, Auckland International Airport's profit is down 86% per year over three years. Even looking at the last year, profit was still down 53%. Like a sack of potatoes thrown from a delivery truck, EPS fell harder, down 54% in the same period. Therefore, the dilution is having a noteworthy influence on shareholder returns.

If Auckland International Airport's EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. For the ordinary retail shareholder, EPS is a great measure to check your hypothetical "share" of the company's profit.

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.

How Do Unusual Items Influence Profit?

Alongside that dilution, it's also important to note that Auckland International Airport's profit was boosted by unusual items worth NZ$39m in the last twelve months. 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. Which is hardly surprising, given the name. 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).

Our Take On Auckland International Airport's Profit Performance

To sum it all up, Auckland International Airport got a nice boost to profit from unusual items; without that, its statutory results would have looked worse. On top of that, the dilution means that its earnings per share performance is worse than its profit performance. For the reasons mentioned above, we think that a perfunctory glance at Auckland International Airport's statutory profits might make it look better than it really is on an underlying level. So while earnings quality is important, it's equally important to consider the risks facing Auckland International Airport at this point in time. For example, we've discovered 1 warning sign that you should run your eye over to get a better picture of Auckland International Airport.

Our examination of Auckland International Airport has focussed on certain factors that can make its earnings look better than they are. And, on that basis, we are somewhat skeptical. 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. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks with significant insider holdings to be useful.

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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.