Sea Harvest Group's (JSE:SHG) Sluggish Earnings Might Be Just The Beginning Of Its Problems

The subdued market reaction suggests that Sea Harvest Group Limited's (JSE:SHG) recent earnings didn't contain any surprises. Our analysis suggests that along with soft profit numbers, investors should be aware of some other underlying weaknesses in the numbers.

See our latest analysis for Sea Harvest Group

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Sea Harvest Group's profit received a boost of R79m in unusual items, over the last year. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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. If Sea Harvest Group doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Sea Harvest Group.

Our Take On Sea Harvest Group's Profit Performance

We'd posit that Sea Harvest Group's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Therefore, it seems possible to us that Sea Harvest Group's true underlying earnings power is actually less than its statutory profit. In further bad news, its earnings per share decreased in the last year. 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 Sea Harvest Group as a business, it's important to be aware of any risks it's facing. For example, Sea Harvest Group has 4 warning signs (and 2 which don't sit too well with us) we think you should know about.

This note has only looked at a single factor that sheds light on the nature of Sea Harvest Group's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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. 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.