Behold The Magic Of Accounting In First Half Earnings

Tyler Durden's picture

Now that Q2 earnings season is over, here is a summary of how all those hundreds of billions in stock buybacks have done.

According to Deutsche Bank, in Q2 EPS, or rather non-GAAP EPS, for S&P 500 stocks rose to $29.50, an impressive increase of 7.9% from the $27.23 a year earlier. This follows a not too shabby 4.4% increase in Q1's Y/Y increase from $26.76 to $27.95.

The problem, as we showed last quarter in "The Truth About First Quarter S&P 500 Earnings", is that virtually all of this increase is due to non-GAAP adbacks, in effect nullifying the impact of the major drop in shares outstanding as companies scramble hand over fist to issue debt and buyback their float. In fact, as we showed last quarter, GAAP EPS declined 2.2% Y/Y.

So what about GAAP Q2 EPS: the answer - a nearly meaningless 1.8% increase, or over four times less than the non-GAAP increase.

So how does the GAAP vs non-GAAP change compare for Q1 and Q2? We show it in the chart below.

Finally, now that we can compile the first half data using the first two quarter data for both 2013 and 2014, we can conclusively state that if it weren't for the accounting magic behind non-GAAP, which includes such addbacks as tens of billions in litigation costs for the TBTBF utilities, pardon banks, pension addbacks, and not to mention hundreds of billions in restructuring addbacks resulting from the mass termination of hundreds of thousands of workers who miraculously fail to trickle through to the BLS' own "survey" data, things would hardly be as rosy as portrayed by the sellside. In fact, EPS growth in the first half was either 6.5%... or 0.2%. Depending on whether or not one believes in accounting magic.

 

Finally, those wondering what the benefit from buybacks to the bottom line has been, here is the breakdown, as well as the EPS growth by sector.

In other words, excluding buybacks, GAAP EPS in the first half would have been negative.

To summarize: for all your non-GAAP adjusted "magical" accounting, "growth" propaganda, there is the mainstream media. For everything else, there is Fed-induced multiple expansion.

Source: Deutsche Bank