The market was pleased with the recent earnings report from Westlake Corporation (NYSE:WLK), despite the profit numbers being soft. We think that investors might be looking at some positive factors beyond the earnings numbers.
See our latest analysis for Westlake
How Do Unusual Items Influence Profit?
To properly understand Westlake’s profit results, we need to consider the US$477m expense attributed to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that’s exactly what the accounting terminology implies. Westlake took a rather significant hit from unusual items in the year to June 2024. All else being equal, this would likely have the effect of making the statutory profit look worse than its underlying earnings power.
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.
Our Take On Westlake’s Profit Performance
As we discussed above, we think the significant unusual expense will make Westlake’s statutory profit lower than it would otherwise have been. Because of this, we think Westlake’s underlying earnings potential is as good as, or possibly even better, than the statutory profit makes it seem! Unfortunately, though, its earnings per share actually fell back over the last year. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company’s potential, but there is plenty more to consider. So while earnings quality is important, it’s equally important to consider the risks facing Westlake at this point in time. You’d be interested to know, that we found 2 warning signs for Westlake and you’ll want to know about these bad boys.
Today we’ve zoomed in on a single data point to better understand the nature of Westlake’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 with high insider ownership.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.
