Should You Use Sensient Technologies's (NYSE:SXT) Statutory Earnings To Analyse It?

By
Simply Wall St
Published
November 27, 2020
NYSE:SXT

Broadly speaking, profitable businesses are less risky than unprofitable ones. Having said that, sometimes statutory profit levels are not a good guide to ongoing profitability, because some short term one-off factor has impacted profit levels. This article will consider whether Sensient Technologies' (NYSE:SXT) statutory profits are a good guide to its underlying earnings.

We like the fact that Sensient Technologies made a profit of US$67.3m on its revenue of US$1.32b, in the last year. In the last few years both its revenue and its profit have fallen, as you can see in the chart below.

View our latest analysis for Sensient Technologies

earnings-and-revenue-history
NYSE:SXT Earnings and Revenue History November 27th 2020

Not all profits are equal, and we can learn more about the nature of a company's past profitability by diving deeper into the financial statements. This article will focus on the impact unusual items have had on Sensient Technologies' statutory earnings. 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?

Importantly, our data indicates that Sensient Technologies' profit was reduced by US$49m, due to unusual items, over the last year. 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, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect Sensient Technologies to produce a higher profit next year, all else being equal.

Our Take On Sensient Technologies' Profit Performance

Unusual items (expenses) detracted from Sensient Technologies' earnings over the last year, but we might see an improvement next year. Because of this, we think Sensient Technologies' earnings potential is at least as good as it seems, and maybe even better! On the other hand, its EPS actually shrunk in the last twelve months. 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. If you'd like to know more about Sensient Technologies as a business, it's important to be aware of any risks it's facing. For example - Sensient Technologies has 5 warning signs we think you should be aware of.

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

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This article by Simply Wall St is general in nature. 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.
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