Investors Can Find Comfort In Emerson Electric's (NYSE:EMR) Earnings Quality

Emerson Electric Co.'s (NYSE:EMR) recent soft profit numbers didn't appear to worry shareholders, as the stock price showed strength. However, we think the company is showing some signs that things are more promising than they seem.

Check out our latest analysis for Emerson Electric

The Impact Of Unusual Items On Profit

To properly understand Emerson Electric's profit results, we need to consider the US$524m expense attributed 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. If Emerson Electric doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

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 Emerson Electric's Profit Performance

Unusual items (expenses) detracted from Emerson Electric's earnings over the last year, but we might see an improvement next year. Because of this, we think Emerson Electric's earnings potential is at least as good as it seems, and maybe even better! And the EPS is up 22% annually, over the last three years. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. So while earnings quality is important, it's equally important to consider the risks facing Emerson Electric at this point in time. While conducting our analysis, we found that Emerson Electric has 3 warning signs and it would be unwise to ignore them.

Today we've zoomed in on a single data point to better understand the nature of Emerson Electric'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.