Mainfreight's (NZSE:MFT) Soft Earnings Are Actually Better Than They Appear

The market for Mainfreight Limited's (NZSE:MFT) shares didn't move much after it posted weak earnings recently. Our analysis suggests that while the profits are soft, the foundations of the business are strong.

View our latest analysis for Mainfreight

The Impact Of Unusual Items On Profit

For anyone who wants to understand Mainfreight's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by NZ$69m due to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's hardly a surprise given these line items are considered unusual. Assuming those unusual expenses don't come up again, we'd therefore expect Mainfreight to produce a higher profit next year, all else being equal.

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 Mainfreight's Profit Performance

Unusual items (expenses) detracted from Mainfreight's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Mainfreight's statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at 11% per year over the last three years. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. So while earnings quality is important, it's equally important to consider the risks facing Mainfreight at this point in time. For example - Mainfreight has 1 warning sign we think you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Mainfreight's profit. But there are plenty of other ways to inform your opinion of a company. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. 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.