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Alcoa's Non-GAAP Earnings, Or "Loss" On A GAAP Basis, Report Explained In Two Charts

Tyler Durden's picture




 

Moments before the Alcoa results were reported kicking off Q1 earnings season, we tweeted:

Guess what? We were spot on.

While Q1 GAAP EPS was indeed a disaster, printing at $(0.16), yes, a loss, one naturally has to add back hundreds of millions of "one time, non-recurring" charges to get the non-GAAP number which was, you guessed it, a tiny beat of the consensus Q1 EPS print of $0.05, coming at $0.09. All this happened as the company's revenues not only tumbled from $5.83 billion a year ago to just $5.454 billion this quarter (down from $5.585 billion in Q4), but also missed expectations of $5.55 billion.

Huzzah?

Of course, looking at the EPS "beat" over the past year reveals something quite scary - in April of last year the forecast was for a $0.20 EPS number. It ended up being less than half that with all the bells and whistles added back.

 

By the way the chart above is not among the two we would like to highlight. But before we get there, two more highlights:

in Q1, Alcoa burned through $760 million in negative Free Cash Flow, compared to $498 million in positive FCF quarter ago, and even worse than the $305 million a year ago.

So on to the charts.

Remember what we said about one-time, non-recurring restructuring charges? We dare you to point them out to us in the following table which shows not only recurring, non only non-one time restructuring charges, but constantly increasing ones at that.

 

A curious fact: in the past 12 months, Alcoa has had $1.236 billion in "one-time" charges. This amount is four times greater than the adjusted, non-GAAP net income during the same period of $333 million! Too bad Alcoa can't pull a JPMorgan and also add back loan loss reserve releases. Here is what Alcoa did add back:

  • a net benefit for a number of small items ($6);
  • a tax benefit representing the difference between Alcoa’s consolidated estimated annual effective tax rate and the statutory rates applied to restructuring and other charges ($72),
  • an unfavorable tax impact related to the interim period treatment of operational losses in certain foreign jurisdictions for which no tax benefit was recognized ($56),
  • the write-off of inventory related to the permanent closure of a smelter and two rolling mills in Australia and a smelter in the United States ($20),
  • an unfavorable impact related to the restart of one potline at the joint venture in Saudi Arabia that was previously shut down due to a period of pot instability ($13),
  • a gain on the sale of a mining interest in Suriname ($11),
  • and a loss on the writedown of an asset to fair value ($2);

Laughing yet?

But saving the best for last, we dare anyone to point the CapEx renaissance that everyone is talking about, on this chart of Alcoa quarterly CapEx. We can wait - we have all day.

 

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Tue, 04/08/2014 - 16:32 | 4636823 i_call_you_my_base
i_call_you_my_base's picture

My non-GAAP assets are $4 billion.

Tue, 04/08/2014 - 16:34 | 4636830 Pareto
Pareto's picture

Mine are $200T

Tue, 04/08/2014 - 16:35 | 4636831 i_call_you_my_base
i_call_you_my_base's picture

Damn, you win.

Tue, 04/08/2014 - 16:56 | 4636887 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

Can I use non-GAAP when filing my taxes?

Tue, 04/08/2014 - 18:22 | 4637202 NoDebt
NoDebt's picture

Yes.  They'll even reserve a special 8x10 room for you at a government facility if you do.

Tue, 04/08/2014 - 16:57 | 4636889 Oldwood
Oldwood's picture

Mine are a negative 17 trillion. Thats real assets there guys!

Tue, 04/08/2014 - 17:01 | 4636902 arby63
arby63's picture

Janet said I could make up any number I want to so there!

Tue, 04/08/2014 - 20:46 | 4637607 lasvegaspersona
lasvegaspersona's picture

Janet schmanet...HILLARY! said...WHAT DIFFERENCE DOES IT MAKE?... can I file using that approach?

Tue, 04/08/2014 - 16:34 | 4636828 starman
starman's picture

"Negative free cash flow" !? Yah I got that problem to!

Tue, 04/08/2014 - 16:39 | 4636850 mayhem_korner
mayhem_korner's picture

 

 

My wife is my negative free cash flow.

Tue, 04/08/2014 - 17:14 | 4636951 BandGap
BandGap's picture

I have an ex-wife that handles that.

Tue, 04/08/2014 - 18:26 | 4637223 NoDebt
NoDebt's picture

I used to.  Then I sold my boat.

Tue, 04/08/2014 - 21:59 | 4637824 aVileRat
aVileRat's picture

Boat sank, pirates got the gold. Pirates declined offer to join crew, too much risk diluting their physical asset arb. strategy profits. 

So amusing that Alcoa thinks they can "IBM" their way out of failing to upstream grow via. developing "value added" services to Al fabrication. Yes, because being the worlds consultants when you are the worst developer in the world is a really smooth growth strategy. They should just bypass directly to go and go full retard (eddie lampert).

Fucking unreal. They must have some wicked drugs at those board meetings. It's like the British Aluminum wars all over again.

 

Tue, 04/08/2014 - 16:50 | 4636874 BandGap
BandGap's picture

Mine is "Imaginary Free Cash Flow", but I'm taking shots for that.

 

Tue, 04/08/2014 - 17:01 | 4636901 Stoploss
Stoploss's picture

After that comes AA.

 

Oh, is this the WTF chart of the day??

Tue, 04/08/2014 - 16:34 | 4636829 NOTaREALmerican
NOTaREALmerican's picture

Everybody knows accountants are all introverted worry-warts (who aren't any fun at parties).    That's why GAAP is not used anymore. 

Tue, 04/08/2014 - 16:35 | 4636832 Pooper Popper
Pooper Popper's picture

DERP!

Tue, 04/08/2014 - 16:36 | 4636835 roadlust
roadlust's picture

UP after hours!  Hits just keep on coming.

 

SPY new highs tomorrow?

Tue, 04/08/2014 - 16:36 | 4636838 mayhem_korner
mayhem_korner's picture

 

 

#losing is the new #winning

Tue, 04/08/2014 - 18:24 | 4637212 NoDebt
NoDebt's picture

It's like that Seinfeld episode where George just starts doing the opposite of what he thinks he should do... and becomes wildly successful.

Tue, 04/08/2014 - 17:20 | 4636839 Rainman
Rainman's picture

Any kind of Tiny Beat read is good enough for the machines ... bullish !

Tue, 04/08/2014 - 16:37 | 4636842 bubblemania
bubblemania's picture

Bullish!

Tue, 04/08/2014 - 17:37 | 4637015 AbelCatalyst
AbelCatalyst's picture

After hours (@ 5:34PM): +2.23%

bullish!!

Tue, 04/08/2014 - 16:37 | 4636843 Bam_Man
Bam_Man's picture

in Q1, Alcoa burned through $760 million in negative Free Cash Flow

Well, I guess they will just have to do some moar borrowing.

Tue, 04/08/2014 - 16:37 | 4636844 ejmoosa
ejmoosa's picture

When one time losses occur every time, then they are not one time losses.

 

They are, however, the cost of doing business.  And if that business cannot be profitable, so be it.

 

 

Tue, 04/08/2014 - 16:37 | 4636847 HaroldWang
HaroldWang's picture

Come on now! All the people on CNBC said it was a good report and because of that AA is kind of a bellwether, sorta. So they must know - up we go!

Tue, 04/08/2014 - 16:38 | 4636848 MillionDollarBoner_
MillionDollarBoner_'s picture

MOAR contrails!!!!

Tue, 04/08/2014 - 16:41 | 4636854 mtndds
mtndds's picture

Thats ok.  Somehow I think the media will twist this report tomorrow and Alcoa will explode higher.  Tomorrow we will hit all time highs in the market.

Tue, 04/08/2014 - 16:46 | 4636858 ebworthen
ebworthen's picture

I bought a six-pack of Olympia ("It's the water") yesterday; isn't that bullish?

Six aluminum cans that fit in my "Always be sincere.  Even when you don't mean it." can cooler.

Tue, 04/08/2014 - 17:58 | 4637105 OpenThePodBayDoorHAL
OpenThePodBayDoorHAL's picture

"what's the difference between ignorance and apathy?"

"I don't know and I don't care"

Tue, 04/08/2014 - 16:43 | 4636859 QQQBall
QQQBall's picture

AA shits the bed every quarter. Only losing 16 cents a share might be the best they report for awhile.

Tue, 04/08/2014 - 16:44 | 4636863 Sudden Debt
Sudden Debt's picture

Thank god nobody looks at Alcoa who kicks off earning season as a indicator...

Tue, 04/08/2014 - 18:01 | 4637110 CrashisOptimistic
CrashisOptimistic's picture

They were booted from the DJIA because . . . they were.

 

Or maybe because the others booted at the same time, BAC and HPQ were not deemed to be representative of . . . something.

Tue, 04/08/2014 - 23:46 | 4638141 SokPOTUS
SokPOTUS's picture

They bring out their earnings too soon.  They need to leave them in the oven longer.

Those books are undercooked.

Tue, 04/08/2014 - 16:46 | 4636864 buzzsaw99
buzzsaw99's picture

#WINNING!

Tue, 04/08/2014 - 16:47 | 4636868 Cangaroo.TNT
Cangaroo.TNT's picture

Since no one other than small business actually adheres to GAAP, can we please, finally, change it to some other, more appropriate acronym?  I'll leave it to the people here that are much smarter than I to figure out exactly what it should be.

Tue, 04/08/2014 - 16:50 | 4636876 walküre
walküre's picture

What's good for the goose is definitely not good for the gooslings

Fuck GAAP. Just another policy tool to keep the 99% in check.

Tue, 04/08/2014 - 17:02 | 4636904 Oldwood
Oldwood's picture

GAAP should be replaced with Skittle Shitting Unicorns Accounting Principles (SSUAP)

Tue, 04/08/2014 - 17:00 | 4636882 AlaricBalth
AlaricBalth's picture

This may be more apropos in relation to the upcoming earnings season:

CRAP - Conveniently Rationalized Accounting Principles

As in the following sentence: Alcoa GAAP earnings to be a disaster. CRAP to be a tiny beat.

Tue, 04/08/2014 - 17:06 | 4636922 Winston Churchill
Winston Churchill's picture

Preceded by a FART. Fractionally Adjusted Revised Profitability.

Tue, 04/08/2014 - 16:49 | 4636871 economessed
economessed's picture

Making aluminum thingies is so old school.  Financialization is the new hotness.  When they can turn your empty Moutain Dew can into someone else's 401K asset, accounting standards don't matter.

Tue, 04/08/2014 - 16:51 | 4636879 Yen Cross
Yen Cross's picture

    I guess the G-20s aluminum helmet order was a little light this time around.

Tue, 04/08/2014 - 17:07 | 4636924 Soul Glow
Soul Glow's picture

Yen, trader extrordinaire, what do you use to short the market?  I'm looking at shorting for the first time since the Spring of '09.

Tue, 04/08/2014 - 17:32 | 4636998 Yen Cross
Yen Cross's picture

      I trade mostly FX Soul Glow, so I watch things like bonds, macro news, equity indexes and flows alot. I also trade shorter time frames intraday-midterm, so if you're looking to get short equities, I'm probably the wrong person to ask. I do think you are coming up on a good shorting opportunity though. (based on what I see in FX.)

Tue, 04/08/2014 - 23:22 | 4638094 UggSmash
UggSmash's picture

Soul Glow: I'm personally using SQQQ, if you're looking to short equities :)

Tue, 04/08/2014 - 17:16 | 4636954 BandGap
BandGap's picture

Chapeaux d'aluminum pour tout le monde!

Tue, 04/08/2014 - 16:55 | 4636884 NEOSERF
NEOSERF's picture

Perhaps when they file for bankruptcy the stock will hit $10 again....sort of like Fannie Freddie because any chance to shed those pesky obligations is a good thing.  This has past embarrassing to fraudulent; when does a management be held accountable ANY time you have 2 quarters of one-time charges...silly "investors" are hoping the HFT momo algorithms will read "beat" and push this up so they can piggyback the 10% gain and get out...this isn't investing, this is a rodeo.

Tue, 04/08/2014 - 16:57 | 4636891 Everybodys All ...
Everybodys All American's picture

Non Gaap the new normal. When all of this gets exposed eventually everyone will wonder why the regulators let this occur. Same as it ever was. Unreal.

Tue, 04/08/2014 - 17:05 | 4636895 Everybodys All ...
Everybodys All American's picture

Delete

 

Tue, 04/08/2014 - 16:59 | 4636896 FreeNewEnergy
FreeNewEnergy's picture

Bauxite, Bitchez!

Tue, 04/08/2014 - 17:04 | 4636913 Soul Glow
Soul Glow's picture

The board members must be shitting bricks.

Tue, 04/08/2014 - 17:18 | 4636959 BandGap
BandGap's picture

They're called ingots. Much smoother and easier on the exit chute.

Tue, 04/08/2014 - 17:56 | 4637098 BullyBearish
BullyBearish's picture

Suspending Mark-to-Market and pushing non-GAAP are hallmarks of the deceit and fraud used to retain power at any cost

Tue, 04/08/2014 - 18:05 | 4637134 CrashisOptimistic
CrashisOptimistic's picture

The 2009 6-month suspension of mark-to-market that is still in effect is the most monumental fraud in the history of accounting.

Wed, 04/09/2014 - 07:17 | 4638608 jerry_theking_lawler
jerry_theking_lawler's picture

Up, UP and Sarbanas Oxley away!!! WE. NEED. MORE. ACCOUNTANTS.

 

That will solve the problem, right?

Tue, 04/08/2014 - 18:18 | 4637183 Spungo
Spungo's picture

I always thought Katja Kassin had the best gape earnings

Tue, 04/08/2014 - 18:50 | 4637313 adr
adr's picture

The only problem is that like modern accounting rules, it's so loose there is no honest feeling to be had.

Tue, 04/08/2014 - 18:46 | 4637294 adr
adr's picture

So now GAAP don't even matter. The fact that nobody on TV is calling this out is embarrassing.

All rules have been thrown out. Anything goes as long as it means stocks can go up. Can we end this thing please?

Tue, 04/08/2014 - 19:15 | 4637373 game theory
game theory's picture

GAAP hasn't mattered for such a long time that I'm surprised to see any company even bothers to report it anymore. Eventually though, reality will interfere with this unicorn ride...and when the cash runs out: chapter 11. Wipeout the suckers holding the stock, hand the bondholders ownership, and life goes on. 

Tue, 04/08/2014 - 20:20 | 4637556 ptolemy_newit
ptolemy_newit's picture

Asia aluminum makers are off the electrical grid………….

Compete with that.

Tue, 04/08/2014 - 21:59 | 4637832 DrData02
DrData02's picture

On the plus side they really don't need accountants if they are filing non-GAAP reports.  So look at the savings!!!  Ironically those savings WOULD be GAAP!  But of course they are non-GAAP too.  Anything can be non-GAAP. 

Whoaw!  This, along with ZIRP, TARP, HAMP and all should let us create A Brave New World.

Just think of it!

Wed, 04/09/2014 - 02:45 | 4638424 q99x2
q99x2's picture

I would have thought they would have been doing better with the increase in heroin use.

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