After looking at Konecranes Plc’s (HLSE:KCR) latest earnings update (31 March 2018), I found it helpful to revisit the company’s performance in the past couple of years and compare this against the latest numbers. As a long-term investor I tend to focus on earnings trend, rather than a single number at one point in time. Also, comparing it against an industry benchmark to understand whether it outperformed, or is simply riding an industry wave, is an important aspect. In this article I briefly touch on my key findings. View our latest analysis for Konecranes
Was KCR’s recent earnings decline worse than the long-term trend and the industry?
For the purpose of this commentary, I like to use the ‘latest twelve-month’ data, which either annualizes the most recent 6-month earnings update, or in some cases, the most recent annual report is already the latest available financial data. This method enables me to assess many different companies in a uniform manner using the most relevant data points. For Konecranes, its most recent trailing-twelve-month earnings is €40.10M, which, relative to the previous year’s level, has declined by a substantial -83.06%. Given that these figures may be somewhat short-term, I’ve determined an annualized five-year value for Konecranes’s net income, which stands at €82.84M This doesn’t seem to paint a better picture, since earnings seem to have consistently been deteriorating over time.
What could be happening here? Well, let’s look at what’s occurring with margins and whether the rest of the industry is feeling the heat. In the last few years, revenue growth has fallen behind which implies that Konecranes’s bottom line has been propelled by unmaintainable cost-reductions. Eyeballing growth from a sector-level, the FI machinery industry has been growing its average earnings by double-digit 10.23% over the prior twelve months, and a more subdued 7.60% over the last five years. This suggests that whatever uplift the industry is profiting from, Konecranes has not been able to leverage it as much as its industry peers.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Typically companies that experience an extended period of diminishing earnings are undergoing some sort of reinvestment phase with the aim of keeping up with the latest industry disruption and growth. You should continue to research Konecranes to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for KCR’s future growth? Take a look at our free research report of analyst consensus for KCR’s outlook.
- Financial Health: Is KCR’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 31 March 2018. This may not be consistent with full year annual report figures.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.