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14% Of S&P 500 Earnings Is "One Time Write Off" Vaporware

Tyler Durden's picture





 

With everyone now well aware that revenues of S&P 500 companies have taken a turn for the worse and are declining for the second consecutive quarter (with well over a majority missing sellside estimates and trimming Q4 guidance), many are wondering: how can corporate EPS continue to grow, even if nominally? Are there really so many people left to be laid off? The answer, to the latter, is no, for the simple reason that it is not layoffs that have driven the upward persistency in corporate earnings. Then what has? Simple: when in doubt, "charge it" - this axiom seems to work not only for cash strapped consumers, but for corporations who know very well that when unable to satisfy earnings estimates using regular way earnings, companies can just write off "one time charges" and get the going concern EPS benefit for such an action.In fact, as the table below shows, a whopping 14% of all 'pro forma' 2012 EPS will be due to "one time write offs" - the highest proportion of total earnings since 2009!

Quarterly corporate write-offs since 2010 and projected:

And the long-term chart:

What is very clear is that of the 104 in pro forma EPS, a whopping 14% of this, or 14.06, is in accounting "one time write off" fudges which are merely creative accounting ways to get benefit for deteriorating operations, and which never manifest in the form of actual earnings or cash flows.

In other words, far from the touted adjusted EPS growth from 97.88 to 104 in 2012, which implies the S&P is oh so cheap at 1400, or under a 14x multiple, when one looks at real earnings pre-write offs which are not and have never been earnings, but are merely an accounting gimmick used and abused by every company since time immemorial, the real earnings in 2012 will be 89, which in turn means that the implied forward PE multiple is roughly 16x at the current market level: above historical average.

It also means that in 2012, GAAP EPS will grow by a tiny 2.7%, the bulk of which can be attributed to financial firm's loan loss reserve release, which is also a form of one-time EPS adjustment.

Finally, and proving that the real EPS trend has caught up with the decline in revenues, is that Q4 GAAP EPS of 22.00 are going to be down from Q3's 23.29, dashing all hopes of a surge in Q4 earnings net of every GAAP fudge imaginable.

And this is how companies perpetuate the myth that all is well on the bottom line, since top line growth is now dead as the twinkie, and only endlessly recurring "one time" adjustments are left.

 


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Tue, 11/27/2012 - 14:58 | Link to Comment Cognitive Dissonance
Cognitive Dissonance's picture

The number one course at the Jack Welch Management Institute - Earnings Management 101

<Followed closely by Executive Compensation Manipulation 101>

Tue, 11/27/2012 - 15:08 | Link to Comment slaughterer
slaughterer's picture

Can we just get to the part where AAPL goes above $600 again?  I am getting bored here.  

Tue, 11/27/2012 - 15:12 | Link to Comment Pladizow
Pladizow's picture

14%?

We all know the market is 100% bullshit!

Tue, 11/27/2012 - 15:24 | Link to Comment slaughterer
slaughterer's picture

WELCH & STRAYER!  A marriage made in ....

Tue, 11/27/2012 - 15:50 | Link to Comment francis_sawyer
francis_sawyer's picture

Whatever it takes to keep the jew moneychangers suspending the disbelief is alright [in some weirdo/whacko universe] I guess...

Tue, 11/27/2012 - 15:14 | Link to Comment jayman21
jayman21's picture

CD - I thought you made it up till I saw a link......ummm what funny thing will pop up on my screen?  Shit, he really has one.  the truth is funnier than fiction.

+100

Tue, 11/27/2012 - 15:16 | Link to Comment Cognitive Dissonance
Cognitive Dissonance's picture

LOL

I made the course names up. Jack calls them something else. Same difference.

Tue, 11/27/2012 - 15:24 | Link to Comment jayman21
jayman21's picture

The intro video is priceless.  The guy cannot get enough of himself.  I wonder if there is enough room for him and the Donald in NYC.  It is a big city, but these guys are real big.

 

LOLOLOLOLOL

Tue, 11/27/2012 - 15:25 | Link to Comment CPL
CPL's picture

Their course materials come complete with a banana and an inner tube for executive performance evaluation.

 

A's will be given for effort.

Tue, 11/27/2012 - 21:13 | Link to Comment Strut
Strut's picture

This is not the noun you're looking for....

Vaporware does not make sense in this context.

Vaporware is a term in the computer industry that describes a product, typically computer hardware or software, that is announced to the general public but is never actually released nor officially cancelled.

http://en.wikipedia.org/wiki/Vaporware

Tue, 11/27/2012 - 14:56 | Link to Comment vast-dom
vast-dom's picture

past accounting tricks not indicative of future earnings. 

Tue, 11/27/2012 - 14:55 | Link to Comment Sphinx_www
Sphinx_www's picture

Egypt boiling over

Live

http://www.ontv-live.com/live/

Tue, 11/27/2012 - 20:27 | Link to Comment BlackholeDivestment
BlackholeDivestment's picture

Thank's for the link. 

Lol, at least the Eyptians have passion. If you look at the American morons, they voted for the same kind of Pharaoh and instead of realizing it they will be dancing at the Inaugurall Ball for joy. Pathetic. 

http://www.youtube.com/watch?feature=player_embedded&v=E4Kou9TGdi8

Tue, 11/27/2012 - 14:56 | Link to Comment ShorTed
ShorTed's picture

And yet 1400 will be defended to the death (and possibly my poverty)!

Tue, 11/27/2012 - 15:04 | Link to Comment Seasmoke
Seasmoke's picture

And $33 silver hammer down every time.

Tue, 11/27/2012 - 15:07 | Link to Comment mayhem_korner
mayhem_korner's picture

 

 

...except the time when it doesn't. 

Patience is the cornerstone of the stacker's creed.

Tue, 11/27/2012 - 15:14 | Link to Comment Cognitive Dissonance
Cognitive Dissonance's picture

'zactly

The middle game is where people voluntarily sort themselves. The end game is where you find out exactly which line you got into. 

Tue, 11/27/2012 - 14:56 | Link to Comment Cursive
Cursive's picture

That 14% is only the tip of the corporate financial reporting fraud.

Tue, 11/27/2012 - 14:58 | Link to Comment Stoploss
Stoploss's picture

Getting closer.

Tue, 11/27/2012 - 14:59 | Link to Comment Cdad
Cdad's picture

Brilliant, Tyler.  Now...just combine  announced share buy backs coupled with insider selling, and you have the whole picture of corporate quarterly nonreports.  Let the looting continue!

The rot is so widespread that it is all breathtaking.  Thanks to the folks over at The BlowHorn [CNBC] for absolutely NEVER covering the true "earnings" story.

Tue, 11/27/2012 - 15:09 | Link to Comment SheepDog-One
SheepDog-One's picture

In any slightly sane paralell universe they'd all be $5 whores and piss bucket carriers at best.

Tue, 11/27/2012 - 15:57 | Link to Comment Cdad
Cdad's picture

Well...maybe that is why they are carrying the piss buckets of the wealthy banker class, day in and day out?  What else could account for a "financial news network" that cannot even accidentally stumble upon even a crumb of truth where financial markets are concerned?  

Tue, 11/27/2012 - 15:13 | Link to Comment slaughterer
slaughterer's picture

Maria

Erin

Becky

Suze

and one other (yoru choice)

(got to limit it to 5)

What are they but

the

QUEENS OF NOISE

COME AND GET IT BOYS:

http://www.youtube.com/watch?v=ElqU3ZGXoXo

(Do not take this YouTube link so casually.  It will open perspectives for you that count in millions.)

 

 

Tue, 11/27/2012 - 15:00 | Link to Comment RopeADope
RopeADope's picture

I would be more interested in knowing how much S&P 500 GAAP earnings would be hit with a 15 year amortization of goodwill. Or maybe the FASB in 2000 wasn't trying to hide the fact that the global economy was beginning its slow collapse.

Tue, 11/27/2012 - 15:05 | Link to Comment mayhem_korner
mayhem_korner's picture

 

 

What are these GAAP earnings you speak of?

Tue, 11/27/2012 - 15:04 | Link to Comment mayhem_korner
mayhem_korner's picture

 

 

The squirrels are running out of acorns.

Tue, 11/27/2012 - 15:08 | Link to Comment ItsDanger
ItsDanger's picture

Thats why NAV with discounted future cash flows is always a better measure.

Tue, 11/27/2012 - 15:15 | Link to Comment DoChenRollingBearing
DoChenRollingBearing's picture

Maybe GRAPHITE miners are now less risky than the S&P 500?  The "Mercenary Geologist" discusses three graphite miners, graphite is being studied as a high-tech possible game-changer (some forms are very light but very strong).

http://tinyurl.com/bpsgpe6

Tue, 11/27/2012 - 15:19 | Link to Comment slaughterer
slaughterer's picture

Weirdo, bizarro market today.  why is russell going nuts again?  WTF with WTI?  PMs just static (except for split second raid last nite).  ES hovering above 1400 support.  Is this the new, new, new normal until something breaks on fiscal cliff?  

Tue, 11/27/2012 - 15:38 | Link to Comment kralizec
kralizec's picture

Something hit the fan after 2...

WTF, all is not bad news...

http://www.infowars.com/black-friday-gun-sales-hit-new-record-high/

Tue, 11/27/2012 - 15:24 | Link to Comment NeedleDickTheBu...
NeedleDickTheBugFucker's picture

Double dipping is a management favorite.  Exclude the hit to today's EPS using the "one-time item" / "non-recurring" / "extraordinary" label while absolutely including the benefits from the write-offs to future EPS.  Brilliant!

Tue, 11/27/2012 - 16:01 | Link to Comment adr
adr's picture

It looks like the no volume ramp to the close is starting to go into effect. The nasdaq is about to go positive.

I've also noticed lately that when the market is red, Nat Gas is green. When the market goes green Nat Gas goes red. Must be where the algos are hiding funds.

Tue, 11/27/2012 - 16:08 | Link to Comment slaughterer
slaughterer's picture

NatGas has taken over function of Treasuries and AAPL as a money market liquidity dump.  

Tue, 11/27/2012 - 16:55 | Link to Comment buzzsaw99
buzzsaw99's picture

Big bank earnings are particularly bogus. Off balance sheet, mark to myth, loan loss reserves booked as bonus fodder...

Tue, 11/27/2012 - 17:06 | Link to Comment earleflorida
earleflorida's picture

oh, how i miss the good old days, of arthur andersen... 

Tue, 11/27/2012 - 17:24 | Link to Comment GMadScientist
GMadScientist's picture

So do shredder salesmen.

Tue, 11/27/2012 - 17:19 | Link to Comment venturen
venturen's picture

No worries they can make it up in financing.

Tue, 11/27/2012 - 17:36 | Link to Comment orangedrinkandchips
orangedrinkandchips's picture

True....BUT WHEN THAT ENDS....BUY BACK STOCK AT THE HIGHS....

 

DONT INVEST IN THE FUTURE...JUST BUY BACK YOUR OWN STOCK....

Do NOT follow this link or you will be banned from the site!