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Non-GAAP Gimmickry 101: How Alcoa Just Beat Consensus EPS
Some companies are notorious for buying back billions in stock in order to mask the decline in their earnings by reducing the number of shares outstanding. Alcoa, which still has a major debt overhang from the last financial crisis, is unable to do that as it simply does not have the free cash flow to dedicate to shareholder friendly activities. Instead, Klaus Kleinfeld's company is forced to resort to an even more primitive form of EPS fudging: massive quarterly EPS addbacks.
And while we noted over the weekend that companies are running out of accounting gimmicks with pro-forma EPS addbacks in Q4 rising to the highest since Lehman...
... Alcoa still is still not done. Not even close.
As the chart below shows, while Alcoa reported relatively clean non-GAAP number in 2011, and 2012, starting with 2013 it went full-tilt, and has raked up nearly $2.2 billion in restructuring charges in the past 2 years.
The problem is that its GAAP Net Income is nowhere close to this number.
Which brings us to Q1 earnings which beat consensus of $0.26 by 2 cents, even though revenues of $5.84 billion not only missed expectations of $5.94 billion materially, but the company saw an annual decline in its sales across three of its four core operating segments.
The problem is that of that $0.28 in "earnings", precisely 50% was in the form of, you guessed it, non-GAAP and proforma addbacks.
In other words, one half of Alcoa's "EPS" in the quarter was due to what management thought was another quarter of recurring "non-recurring", non-one time "one-time" charges.
What about for the past 12 months? Pretty much the same: Alcoa's GAAP Net Income for the LTM period ended March 31 was $641 million. The same Net Income but on a non-GAAP Basis: more than 100% higher, or $1.381 billion.
So while 2014 may have marked the highest contribution from non-GAAP "earnings" since Lehman, rising to 14% of total with GAAP EPS responsible for $102 of the $118 in non-GAAP EPS, for Alcoa this number, for yet another quarter, was a whopping 50% of the bottom line!
And that concludes today's lesson on hitting your non-GAAP bogey thanks to a year of record "restructuring" addbacks.
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"Alcoa can't wait" to float their stock valuation.
"Bonuses all around fella's!"
"Remember to recycle!"
It only matters when stocks go down.....carry on!
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This is like taking your foot wedge to the golf course.
Bullish Maximo !
The term "quality of earnings" has been buried with Jimmy Hoffa. Everyone involved in the markets is now a sell-sider.
Those damn adjustments are embarrasing.
Time to pass new legislation to do away with GAAP reporting altogether.
take another bonus boyz
So gold vs the euro....gold has kicked its ass. But because gold has stayed at PAR with the dollar, ZH can't promote gold as a resource. C'mon trolls, let's bash gold!
To the moon, Alice, I mean, Klaus:
http://finance.yahoo.com/q/it?s=AA+Insider+Transactions
Holy insider transactions, Batman. Old Klaus cashed out shares and options to net over $17 million this past January, plus an October 2014 payout of over $18 million, plus $19 million in July 2014, and so on, etc., etc.
Tell me again what he does that makes him worth so much money?
As sales of tinfoil hats skyrocket, Alcoa will no longer need to resort to such "primative" shenanigans.
Only the brain-dead (or soon to be brain-dead) will not be wearing tinfoil (or aluminum foil ... tin is more expensive) hats.
it's only fiat, paper toilet paper printed to infinity, so , who give a chit, hell haven't you got some side books?
I have a guy trying to sell me a car wash at a 9% cap using this same type of Bullshit. I offered him 30% off asking price...and now he wants to "explain" the numbers.
since when is normal Cap Ex not depreciated over 3-5 yrs.... Because its a fucking normal expense asshole!
Midwest car washes are the best....at the right price.
Car washes and laundramats are the best. I'll bet there isn't a one in the country that shows a profit.
Non-GAAP?
LOL.
it's really sad that a ceo and the like can have a company buy their own shares on the open market in order to protect and inflate his and their own compensation.
There is no guilt, no shame left for thieves and liars, welfare mooches and currency manipulators.
All of the guilt left in the world has been reserved for one group...old white guys.
I read about this yesterday. I figured it was old news to Z/H contributors.
Q1 Earnings Set to Begin - April 7, 2015 - Zacks.com
I think the markets pretty much had the B/S priced in.
Financial engineering is not only expected, it's encouraged. Who is there to hold them accountable (no pun intended)? The audit firms? yeah right, .gov? hell no, they want things to look good no matter what the truth is. Maybe GAAP should be redefined to mean bullshit.