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Does Brown-Forman Corporation's (NYSE:BF.B) 16% Earnings Growth Reflect The Long-Term Trend?

Simply Wall St

For investors with a long-term horizon, examining earnings trend over time and against industry peers is more insightful than looking at an earnings announcement in one point in time. Investors may find my commentary, albeit very high-level and brief, on Brown-Forman Corporation (NYSE:BF.B) useful as an attempt to give more color around how Brown-Forman is currently performing.

See our latest analysis for Brown-Forman

Did BF.B's recent earnings growth beat the long-term trend and the industry?

BF.B's trailing twelve-month earnings (from 30 April 2019) of US$835m has jumped 16% compared to the previous year.

Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of 2.6%, indicating the rate at which BF.B is growing has accelerated. How has it been able to do this? Let's see if it is merely owing to an industry uplift, or if Brown-Forman has experienced some company-specific growth.

NYSE:BF.B Income Statement, August 16th 2019

In terms of returns from investment, Brown-Forman has invested its equity funds well leading to a 51% return on equity (ROE), above the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 18% exceeds the US Beverage industry of 9.8%, indicating Brown-Forman has used its assets more efficiently. However, its return on capital (ROC), which also accounts for Brown-Forman’s debt level, has declined over the past 3 years from 31% to 25%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 49% to 148% over the past 5 years.

What does this mean?

Though Brown-Forman's past data is helpful, it is only one aspect of my investment thesis. Positive growth and profitability are what investors like to see in a company’s track record, but how do we properly assess sustainability? I recommend you continue to research Brown-Forman to get a more holistic view of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for BF.B’s future growth? Take a look at our free research report of analyst consensus for BF.B’s outlook.
  2. Financial Health: Are BF.B’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 April 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.