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Precision Drilling Corporation's (TSE:PD) healthy profit numbers didn't contain any surprises for investors. However the statutory profit number doesn't tell the whole story, and we have found some factors which might be of concern to shareholders.
See our latest analysis for Precision Drilling
How Do Unusual Items Influence Profit?
Importantly, our data indicates that Precision Drilling's profit received a boost of CA$42m in unusual items, over the last year. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's as you'd expect, given these boosts are described as 'unusual'. If Precision Drilling doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current 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.
An Unusual Tax Situation
Having already discussed the impact of the unusual items, we should also note that Precision Drilling received a tax benefit of CA$37m. This is of course a bit out of the ordinary, given it is more common for companies to be paying tax than receiving tax benefits! The receipt of a tax benefit is obviously a good thing, on its own. However, the devil in the detail is that these kind of benefits only impact in the year they are booked, and are often one-off in nature. In the likely event the tax benefit is not repeated, we'd expect to see its statutory profit levels drop, at least in the absence of strong growth. So while we think it's great to receive a tax benefit, it does tend to imply an increased risk that the statutory profit overstates the sustainable earnings power of the business.
Our Take On Precision Drilling's Profit Performance
In the last year Precision Drilling received a tax benefit, which boosted its profit in a way that might not be much more sustainable than turning prime farmland into gas fields. And on top of that, it also saw an unusual item boost its profit, suggesting that next year might see a lower profit number, if these events are not repeated. For the reasons mentioned above, we think that a perfunctory glance at Precision Drilling's statutory profits might make it look better than it really is on an underlying level. If you'd like to know more about Precision Drilling as a business, it's important to be aware of any risks it's facing. To that end, you should learn about the 4 warning signs we've spotted with Precision Drilling (including 2 which are potentially serious).