Here’s Why We Don’t Think Ternium’s (NYSE:TX) Statutory Earnings Reflect Its Underlying Earnings Potential
Broadly speaking, profitable businesses are less risky than unprofitable ones. That said, the current statutory profit is not always a good guide to a company’s underlying profitability. This article will consider whether Ternium’s (NYSE:TX) statutory profits are a good guide to its underlying earnings.
It’s good to see that over the last twelve months Ternium made a profit of US$248.5m on revenue of US$8.41b. Below, you can see that both its revenue and its profit have fallen over the last three years.
View our latest analysis for Ternium
Not all profits are equal, and we can learn more about the nature of a company’s past profitability by diving deeper into the financial statements. This article will focus on the impact unusual items have had on Ternium’s statutory earnings. That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.
How Do Unusual Items Influence Profit?
For anyone who wants to understand Ternium’s profit beyond the statutory numbers, it’s important to note that during the last twelve months statutory profit gained from US$126m worth of unusual items. We can’t deny that higher profits generally leave us optimistic, but we’d prefer it if the profit were to be sustainable. We ran the numbers on most publicly listed companies worldwide, and it’s very common for unusual items to be once-off in nature. And that’s as you’d expect, given these boosts are described as ‘unusual’. If Ternium doesn’t see that contribution repeat, then all else being equal we’d expect its profit to drop over the current year.
Our Take On Ternium’s Profit Performance
Arguably, Ternium’s statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Ternium’s statutory profits are better than its underlying earnings power. Sadly, its EPS was down over the last twelve months. Of course, we’ve only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. If you want to do dive deeper into Ternium, you’d also look into what risks it is currently facing. Case in point: We’ve spotted 2 warning signs for Ternium you should be aware of.
This note has only looked at a single factor that sheds light on the nature of Ternium’s profit. But there is always more to discover if you are capable of focussing your mind on minutiae. Some people consider a high return on equity to be a good sign of a quality business. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.
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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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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