Smurfit Westrock's (NYSE:SW) Shareholders Have More To Worry About Than Only Soft Earnings

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editorial-team@simplywallst.com (Simply Wall St)

Sun, Mar 16, 2025, 6:01 AM 3 min read

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. As it happens, Smurfit Westrock issued 101% more new shares over the last year. Therefore, each share now receives a smaller portion of profit. 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. Check out Smurfit Westrock's historical EPS growth by clicking on this link.

How Is Dilution Impacting Smurfit Westrock's Earnings Per Share (EPS)?

Unfortunately, Smurfit Westrock's profit is down 60% per year over three years. Even looking at the last year, profit was still down 61%. Sadly, earnings per share fell further, down a full 74% in that time. Therefore, one can observe that the dilution is having a fairly profound effect on shareholder returns.

If Smurfit Westrock's EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. However, if its profit increases while its earnings per share stay flat (or even fall) then shareholders might not see much benefit. For the ordinary retail shareholder, EPS is a great measure to check your hypothetical "share" of the company's profit.

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.

How Do Unusual Items Influence Profit?

Alongside that dilution, it's also important to note that Smurfit Westrock's profit suffered from unusual items, which reduced profit by US$395m 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. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. 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 Smurfit Westrock to produce a higher profit next year, all else being equal.

Our Take On Smurfit Westrock's Profit Performance

Smurfit Westrock suffered from unusual items which depressed its profit in its last report; if that is not repeated then profit should be higher, all else being equal. 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. Having considered these factors, we don't think Smurfit Westrock's statutory profits give an overly harsh view of the business. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. For instance, we've identified 6 warning signs for Smurfit Westrock (2 are significant) you should be familiar with.

Our examination of Smurfit Westrock has focussed on certain factors that can make its earnings look better than they are. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.