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 [4]with pro-forma EPS addbacks in Q4 rising to the highest since Lehman...
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... 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.
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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.
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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.
