Shareholders Will Be Pleased With The Quality of Intel’s (NASDAQ:INTC) Earnings
Investors were disappointed with Intel Corporation’s (NASDAQ:INTC) earnings, despite the strong profit numbers. We did some digging and found some worrying underlying problems.
View our latest analysis for Intel
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The Impact Of Unusual Items On Profit
Importantly, our data indicates that Intel’s profit was reduced by US$985m, due to unusual items, over the last year. 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 that’s hardly a surprise given these line items are considered unusual. In the twelve months to June 2024, Intel had a big unusual items expense. 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.
An Unusual Tax Situation
Just as we noted the unusual items, we must inform you that Intel received a tax benefit which contributed US$866m to the bottom line. It’s always a bit noteworthy when a company is paid by the tax man, rather than paying the tax man. Of course, prima facie it’s great to receive a tax benefit. And since it previously lost money, it may well simply indicate the realisation of past tax losses. However, our data indicates that tax benefits can temporarily boost statutory profit in the year it is booked, but subsequently profit may fall back. Assuming the tax benefit is not repeated every year, we could see its profitability drop noticeably, all else being equal.
Our Take On Intel’s Profit Performance
In its last report Intel received a tax benefit which might make its profit look better than it really is on a underlying level. Having said that, it also had a unusual item reducing its profit. Based on these factors, it’s hard to tell if Intel’s profits are a reasonable reflection of its underlying profitability. With this in mind, we wouldn’t consider investing in a stock unless we had a thorough understanding of the risks. In terms of investment risks, we’ve identified 2 warning signs with Intel, and understanding them should be part of your investment process.
Our examination of Intel has focussed on certain factors that can make its earnings look better than they are. But there are plenty of other ways to inform your opinion of a company. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to ‘follow the money’ and search out stocks that insiders are buying. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks with significant insider holdings to be useful.
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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.
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