Does Nestlé S.A.'s (VTX:NESN) 42% Earnings Growth Reflect The Long-Term Trend?

Simply Wall St

After reading Nestlé S.A.'s (VTX:NESN) latest earnings update (31 December 2018), I found it beneficial to look back at how the company has performed in the past and compare this against the most recent numbers. As a long-term investor I tend to pay attention to earnings trend, rather than a single number at one point in time. I also like to compare against an industry benchmark to understand whether NESN has outperformed, or whether it is simply riding an industry wave. Below is a brief commentary on my key takeaways.

View our latest analysis for Nestlé

How Well Did NESN Perform?

NESN's trailing twelve-month earnings (from 31 December 2018) of CHF10b has jumped 42% compared to the previous year.

Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of -7.9%, indicating the rate at which NESN is growing has accelerated. How has it been able to do this? Let's see if it is only attributable to industry tailwinds, or if Nestlé has seen some company-specific growth.

SWX:NESN Income Statement, April 20th 2019

In terms of returns from investment, Nestlé has fallen short of achieving a 20% return on equity (ROE), recording 18% instead. However, its return on assets (ROA) of 7.8% exceeds the CH Food industry of 7.0%, indicating Nestlé has used its assets more efficiently. And finally, its return on capital (ROC), which also accounts for Nestlé’s debt level, has increased over the past 3 years from 15% to 16%.

What does this mean?

While past data is useful, it doesn’t tell the whole story. Companies that have performed well in the past, such as Nestlé gives investors conviction. However, the next step would be to assess whether the future looks as optimistic. You should continue to research Nestlé to get a more holistic view of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for NESN’s future growth? Take a look at our free research report of analyst consensus for NESN’s outlook.
  2. Financial Health: Are NESN’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.
  3. 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 December 2018. This may not be consistent with full year annual report figures.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.