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Surprise: GAAP S&P500 EPS Set To Decline 1.3% In 2014

Tyler Durden's picture




 

One of the justifications pundits have been forced to use today to explain the unprecedented collapse in holiday spending, which as we noted yesterday, tumbled by 11% is that more and more consumers are simply purchasing items on line. Which is great... until one looks at the actual data which reveals a diametrically opposite reality, namely that shoppers spent an average $159.55 online, down 10.2% from $177.67 last year.

 

Facts are funny like that.

Which brings us to mass delusion #2: one thing which everyone takes for granted and as ironclad as Yellen's gospel, is that stocks are higher because profits are soaring. Which they are... on massaged paper. And then reality takes over again.

Recall that Q3 earnings, which were aggressively guided down over the summer, actually ended up surprising to the upside, leading the permabull to screech with joy at the unstoppable strength of US corporate profitability. Of course, that is because a more than equal reduction of Q4 2014 EPS consensus took place, as can be seen on the chart below.

 

However, one thing that nobody will mention, is that even net of the downward revision, corporate profits in 2014 were far, far worse than most expect. The reason? Non-GAAP adjustments such as adding back "one-time, non-recurring" items such as hundreds of billions in banking legal fees, tens of billions in stock-based employee comp, and other all too real expense items which in the New Normal are now a way of doing business.

What is the bottom line? Well, as of Q3, when adding the consensus number for Q4 EPS, we find that while non-GAAP EPS is set to rise by a healthy 6.6%, real rarnings, as in GAAP EPS, will actually decline by 1.3% in 2014, meaning that for yet another year, the only upside in stocks has been due to - thank you Fed - multiples expansion.

 

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Mon, 12/01/2014 - 13:42 | 5505045 Aknownymouse
Aknownymouse's picture

The truth is to be ignored. Just like in Ferguson.

Mon, 12/01/2014 - 13:43 | 5505047 LawsofPhysics
LawsofPhysics's picture

So, same as it ever was then?  Isn't "mark to fantasy" wonderful?

Mon, 12/01/2014 - 13:46 | 5505051 Pool Shark
Pool Shark's picture

 

 

GAAP?

The problem with Generally Accepted Accounting Principles is that with FASB 157, they're no longer Generally Accepted...

[Don't like the results of the game? Simply change the Rules...]

 

Mon, 12/01/2014 - 13:57 | 5505118 DavidC
DavidC's picture

FASB was held over a barrel by Congress ('If you don't change the rule we'll change the law').

DavidC

Mon, 12/01/2014 - 13:45 | 5505062 praps
praps's picture

You can prove anything with facts.

 

Homer Simpson

Mon, 12/01/2014 - 13:48 | 5505076 buzzsaw99
buzzsaw99's picture

gaap - lulz

Mon, 12/01/2014 - 13:50 | 5505085 SmokinMonkey
SmokinMonkey's picture

Step 1 - Stick head in sand

Step 2.  Janet "Smurf sized" Yellen just took a big dump where you did that.  

Mon, 12/01/2014 - 13:51 | 5505097 SheepDog-One
SheepDog-One's picture

Further down the rabbit hole we'll go no doubt.

Mon, 12/01/2014 - 13:53 | 5505098 SickDollar
SickDollar's picture

GAAP still exist ?????

 

Mon, 12/01/2014 - 13:55 | 5505105 Winston Churchill
Winston Churchill's picture

Poor little bugger is on the endangered species list.

Mon, 12/01/2014 - 13:53 | 5505101 philosophers bone
philosophers bone's picture

Revisions to GAAP to be announced shortly.....

Mon, 12/01/2014 - 13:55 | 5505107 SpanishGoop
SpanishGoop's picture

Gaap is Dutch for yawn, so what's new this Q ?

 

 

Mon, 12/01/2014 - 13:56 | 5505109 KnuckleDragger-X
KnuckleDragger-X's picture

January will be an interesting month, I wonder if Cramer's head will explode trying to explain that swimming in a shithole market is the way to go.....

Mon, 12/01/2014 - 14:00 | 5505132 Bell's 2 hearted
Bell's 2 hearted's picture

King Dollar  digging into  exports and fx treatment of overseas earnings ... this trend will only worsen as 2015 will see escalation of currency wars (Kuroda's halloween move only the start imo)

Mon, 12/01/2014 - 14:28 | 5505269 youngman
youngman's picture

If Retail sales stay down 11% or more...you will soon see the stock buybacks stop too..and to me that was half the market this year...

Mon, 12/01/2014 - 15:28 | 5505545 ejmoosa
ejmoosa's picture

Add the data from 2012 and I bet we have a two year trend here....

Mon, 12/01/2014 - 17:05 | 5505960 sun tzu
sun tzu's picture

Use the real top and bottom lines instead of eps and it will look even worse

Mon, 12/01/2014 - 21:42 | 5506928 ArtOfLife
ArtOfLife's picture

Earnings are smoke and mirrors, it's about the cashflow. 

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