The Strong Earnings Posted By Pilgrim's Pride (NASDAQ:PPC) Are A Good Indication Of The Strength Of The Business

The subdued stock price reaction suggests that Pilgrim's Pride Corporation's (NASDAQ:PPC) strong earnings didn't offer any surprises. We think that investors have missed some encouraging factors underlying the profit figures.

See our latest analysis for Pilgrim's Pride

How Do Unusual Items Influence Profit?

For anyone who wants to understand Pilgrim's Pride's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by US$90m due to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. 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 Pilgrim's Pride 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 Pilgrim's Pride's Profit Performance

Because unusual items detracted from Pilgrim's Pride'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 Pilgrim's Pride's statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at an extremely impressive rate 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. At Simply Wall St, we found 2 warning signs for Pilgrim's Pride and we think they deserve your attention.

This note has only looked at a single factor that sheds light on the nature of Pilgrim's Pride'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. 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 that insiders are buying 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.