In this article, I will take a look at Givaudan SA's (SWX:GIVN) most recent earnings update (30 June 2019) and compare these latest figures against its performance over the past few years, along with how the rest of GIVN'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.
Despite a decline, did GIVN underperform the long-term trend and the industry?
GIVN's trailing twelve-month earnings (from 30 June 2019) of CHF672m has declined by -5.0% 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 4.7%, indicating the rate at which GIVN is growing has slowed down. Why could this be happening? Well, let's look at what's occurring with margins and whether the rest of the industry is experiencing the hit as well.
In terms of returns from investment, Givaudan has invested its equity funds well leading to a 20% return on equity (ROE), above the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 7.4% exceeds the CH Chemicals industry of 7.3%, indicating Givaudan has used its assets more efficiently. However, its return on capital (ROC), which also accounts for Givaudan’s debt level, has declined over the past 3 years from 16% to 11%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 44% to 106% over the past 5 years.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Companies that are profitable, but have capricious earnings, can have many factors influencing its business. I recommend you continue to research Givaudan to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for GIVN’s future growth? Take a look at our free research report of analyst consensus for GIVN’s outlook.
- Financial Health: Are GIVN’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.
- 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.
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