U.S. Markets closed

Was Associated British Foods plc's (LON:ABF) Earnings Decline Part Of A Broader Industry Downturn?

Simply Wall St

Today I will examine Associated British Foods plc's (LSE:ABF) latest earnings update (14 September 2019) and compare these figures against its performance over the past couple of years, in addition to how the rest of ABF's industry performed. As a long-term investor, I find it useful to analyze the company's trend over time in order to estimate whether or not the company is able to meet its goals, and eventually grow sustainably over time.

View our latest analysis for Associated British Foods

How Well Did ABF Perform?

ABF's trailing twelve-month earnings (from 14 September 2019) of UK£878m has declined by -13% 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 10%, indicating the rate at which ABF is growing has slowed down. Why is this? Let's examine what's transpiring with margins and if the entire industry is facing the same headwind.

LSE:ABF Income Statement, December 2nd 2019

In terms of returns from investment, Associated British Foods has fallen short of achieving a 20% return on equity (ROE), recording 9.4% instead. However, its return on assets (ROA) of 6.7% exceeds the GB Food industry of 5.0%, indicating Associated British Foods has used its assets more efficiently. Though, its return on capital (ROC), which also accounts for Associated British Foods’s debt level, has declined over the past 3 years from 12% to 12%.

What does this mean?

While past data is useful, it doesn’t tell the whole story. Companies that are profitable, but have volatile earnings, can have many factors affecting its business. I recommend you continue to research Associated British Foods to get a more holistic view of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for ABF’s future growth? Take a look at our free research report of analyst consensus for ABF’s outlook.
  2. Financial Health: Are ABF’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 14 September 2019. This may not be consistent with full year annual report figures.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.