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The market for Ingredion Incorporated's (NYSE:INGR) shares didn't move much after it posted weak earnings recently. We did some digging, and we believe the earnings are stronger than they seem.
How Do Unusual Items Influence Profit?
For anyone who wants to understand Ingredion's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by US$123m due to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. 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 Ingredion 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 Ingredion's Profit Performance
Because unusual items detracted from Ingredion'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 Ingredion's statutory profit actually understates its earnings potential! And the EPS is up 31% annually, over the last three years. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. So while earnings quality is important, it's equally important to consider the risks facing Ingredion at this point in time. At Simply Wall St, we found 1 warning sign for Ingredion and we think they deserve your attention.
Today we've zoomed in on a single data point to better understand the nature of Ingredion's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. 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 with significant insider holdings 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.