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The market for Tate & Lyle plc's (LON:TATE) shares didn't move much after it posted weak earnings recently. We think that the softer headline numbers might be getting counterbalanced by some positive underlying factors.
See our latest analysis for Tate & Lyle
One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. Tate & Lyle expanded the number of shares on issue by 12% over the last year. That means its earnings are split among a greater number of shares. Per share metrics like EPS help us understand how much actual shareholders are benefitting from the company's profits, while the net income level gives us a better view of the company's absolute size. You can see a chart of Tate & Lyle's EPS by clicking here.
How Is Dilution Impacting Tate & Lyle's Earnings Per Share (EPS)?
Tate & Lyle has improved its profit over the last three years, with an annualized gain of 177% in that time. Net income was down 6.1% over the last twelve months. But the EPS result was even worse, with the company recording a decline of 5.2%. Therefore, the dilution is having a noteworthy influence on shareholder returns.
In the long term, if Tate & Lyle's earnings per share can increase, then the share price should too. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. For that reason, you could say that EPS is more important that net income in the long run, assuming the goal is to assess whether a company's share price might grow.
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.
The Impact Of Unusual Items On Profit
Alongside that dilution, it's also important to note that Tate & Lyle's profit suffered from unusual items, which reduced profit by UK£57m in the last twelve months. 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, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect Tate & Lyle to produce a higher profit next year, all else being equal.
Our Take On Tate & Lyle's Profit Performance
To sum it all up, Tate & Lyle took a hit from unusual items which pushed its profit down; without that, it would have made more money. But unfortunately the dilution means that shareholders now own a smaller proportion of the company (assuming they maintained the same number of shares). That will weigh on earnings per share, even if it is not reflected in net income. Based on these factors, it's hard to tell if Tate & Lyle's profits are a reasonable reflection of its underlying profitability. If you want to do dive deeper into Tate & Lyle, you'd also look into what risks it is currently facing. At Simply Wall St, we found 3 warning signs for Tate & Lyle and we think they deserve your attention.