Material Margin CompressionGross margin erosion of this magnitude materially reduces profitability and the buffer to absorb cost inflation. If structural (pricing, input costs, or mix) this limits reinvestment, compresses returns on capital, and could keep sustainable margins well below historical norms.
Weaker Earnings LeverageTop‑line gains failing to lift net income imply rising operating costs or fixed‑cost inefficiencies. Persistent weak operating leverage undermines the durability of earnings growth, complicates forecasts, and reduces ROE potential unless cost structure is fixed long‑term.
Inconsistent Cash ConversionVolatile cash conversion and swings in free cash flow make internal funding unpredictable. This raises risk for capex, dividends, or debt repayment sequencing and means the recent OCF improvement may not be reliable without structural fixes to working capital or cash generation.