Investors Can Find Comfort In Owens Corning's (NYSE:OC) Earnings Quality

Shareholders appeared unconcerned with Owens Corning's (NYSE:OC) lackluster earnings report last week. We did some digging, and we believe the earnings are stronger than they seem.

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The Impact Of Unusual Items On Profit

For anyone who wants to understand Owens Corning's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by US$675m 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. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect Owens Corning 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 Owens Corning's Profit Performance

Because unusual items detracted from Owens Corning's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Based on this observation, we consider it likely that Owens Corning's statutory profit actually understates its earnings potential! On the other hand, its EPS actually shrunk in the last twelve months. 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 Owens Corning at this point in time. You'd be interested to know, that we found 3 warning signs for Owens Corning and you'll want to know about them.

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