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Should Danone S.A.'s (EPA:BN) Recent Earnings Decline Worry You?

Simply Wall St

When Danone S.A.'s (ENXTPA:BN) announced its latest earnings (30 June 2019), I wanted to understand how these figures stacked up against its past performance. The two benchmarks I used were Danone's average earnings over the past couple of years, and its industry performance. These are useful yardsticks to help me gauge whether or not BN actually performed well. Below is a quick commentary on how I see BN has performed.

Check out our latest analysis for Danone

Did BN perform worse than its track record and industry?

BN's trailing twelve-month earnings (from 30 June 2019) of €2.2b has declined by -19% 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 19%, indicating the rate at which BN is growing has slowed down. What could be happening here? Well, let's look at what's going on with margins and if the entire industry is experiencing the hit as well.

ENXTPA:BN Income Statement, October 5th 2019

In terms of returns from investment, Danone has fallen short of achieving a 20% return on equity (ROE), recording 14% instead. However, its return on assets (ROA) of 5.1% exceeds the FR Food industry of 3.7%, indicating Danone has used its assets more efficiently. Though, its return on capital (ROC), which also accounts for Danone’s debt level, has declined over the past 3 years from 13% to 11%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 107% to 112% over the past 5 years.

What does this mean?

Danone'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 unpredictable earnings, can have many factors impacting its business. I suggest you continue to research Danone to get a better picture of the stock by looking at:

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

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.

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. Thank you for reading.