Moments ago Walgreen reported that it was the latest company to confirm that despite endless propaganda, the retail weakness in the most recent quarter - one ending November 30 - has spread to virtually all product lines, and as a result it missed revenue estimate of $19.59 billion, printing $19.55BN instead. Yet despite the top-line weakness, the stock is higher pre-market for one simple reason: as usual the algos were fooled by the bottom line, which beat by a whopping 6 cents, printing at $0.81 on $0.75 expected. But unlike most of its peers buying back their stock at a record pace, Walgreen barely engaged in the now generic stock repurchasing gimmicks.
So how did Walgreen succeed in boosting its aftertax EPS to beat expectations even as revenues missed expectations, especially with operating income in the quarter virtually unchanged from a year ago?
The answer, as shown in the chart below, is simple: WAG used the oldest trick in the book, and stretched its effective tax rate for GAAP purposes in the quarter to the lowest it could go.
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Had Walgreen used the same tax rate as a quarter ago? It would have missed the bottom line non-GAAP expectations by about 5 cents.
And now add a few thousand other accounting fudges like this one, and one can see how the bulk of "earnings" growth in the S&P is nothing but vaporware and gimmickry.
