In this article, I will take a look at Landec Corporation’s (NASDAQ:LNDC) most recent earnings update (27 May 2018) and compare these latest figures against its performance over the past few years, along with how the rest of LNDC’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.
Did LNDC beat its long-term earnings growth trend and its industry?
LNDC’s trailing twelve-month earnings (from 27 May 2018) of US$25.7m has more than doubled from US$10.0m in the prior year.
Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of -9.3%, indicating the rate at which LNDC is growing has accelerated. What’s the driver of this growth? Let’s take a look at whether it is solely because of industry tailwinds, or if Landec has seen some company-specific growth.
In the last couple of years, Landec top-line expansion has overtaken earnings and the growth rate of expenses. Though this has caused a margin contraction, it has lessened Landec’s earnings contraction.
Eyeballing growth from a sector-level, the US food industry has been growing its average earnings by double-digit 22.5% over the past year, and a more muted 6.5% over the past half a decade. This growth is a median of profitable companies of 25 Food companies in US including TDH Holdings, Fresh Del Monte Produce and Campbell Soup. This means any uplift the industry is enjoying, Landec is able to amplify this to its advantage.
In terms of returns from investment, Landec has fallen short of achieving a 20% return on equity (ROE), recording 10.2% instead. Furthermore, its return on assets (ROA) of 6.4% is below the US Food industry of 8.4%, indicating Landec’s are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for Landec’s debt level, has declined over the past 3 years from 6.3% to 6.1%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 24.6% to 28.9% over the past 5 years.
What does this mean?
Landec’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. While Landec has a good historical track record with positive growth and profitability, there’s no certainty that this will extrapolate into the future. I suggest you continue to research Landec to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for LNDC’s future growth? Take a look at our free research report of analyst consensus for LNDC’s outlook.
- Financial Health: Are LNDC’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 27 May 2018. This may not be consistent with full year annual report figures.
To help readers see past 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. For errors that warrant correction please contact the editor at firstname.lastname@example.org.