In this commentary, I will examine Wilmar International Limited’s (SGX:F34) latest earnings update (30 June 2018) and compare these figures against its performance over the past couple of years, as well as how the rest of the food industry performed. As an investor, I find it beneficial to assess F34’s trend over the short-to-medium term in order to gauge whether or not the company is able to meet its goals, and ultimately sustainably grow over time.

See our latest analysis for Wilmar International

Have F34’s earnings improved against past performances and the industry?

F34’s trailing twelve-month earnings (from 30 June 2018) of US$1.34b has declined by -1.17% compared to the previous year. Furthermore, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of -4.18%, indicating the rate at which F34 is growing has slowed down. Why is this? Well, let’s look at what’s occurring with margins and whether the rest of the industry is experiencing the hit as well.

Although revenue growth over the past few years, has been negative, earnings growth has been deteriorating by even more, meaning Wilmar International has been ramping up its expenses. This hurts margins and earnings, and is not a sustainable practice. Inspecting growth from a sector-level, the SG food industry has been enduring some headwinds over the prior twelve months, leading to average earnings dropping by more than half. This is a a strong change, given that the industry has been delivering a relatively flat growth rate over the last couple of years. This growth is a median of profitable companies of 15 Food companies in SG including Fraser and Neave, Yeo Hiap Seng and QAF. This means that whatever near-term headwind the industry is enduring, the impact on Wilmar International has been softer relative to its peers.

In terms of returns from investment, Wilmar International has fallen short of achieving a 20% return on equity (ROE), recording 8.72% instead. Furthermore, its return on assets (ROA) of 3.03% is below the SG Food industry of 4.42%, indicating Wilmar International’s are utilized less efficiently. However, its return on capital (ROC), which also accounts for Wilmar International’s debt level, has increased over the past 3 years from 6.94% to 9.02%. This correlates with a decrease in debt holding, with debt-to-equity ratio declining from 161.80% to 139.35% over the past 5 years.

What does this mean?

Wilmar International’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. Companies that are profitable, but have capricious earnings, can have many factors impacting its business. I recommend you continue to research Wilmar International to get a more holistic view of the stock by looking at:

1. Future Outlook: What are well-informed industry analysts predicting for F34’s future growth? Take a look at our free research report of analyst consensus for F34’s outlook.

2. Financial Health: Are F34’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.

3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

NB: Figures in this article are calculated using data from the trailing twelve months from 30 June 2018. This may not be consistent with full year annual report figures.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.