The Oldest Trick In The Accounting Book Is Back: How Coke Just "Beat" EPS Despite Sliding Revenues And ProfitSubmitted by Tyler Durden on 07/22/2015 07:13 -0500
If KO had applied the proper tax rate of 28.7% to its non-GAAP pre tax income of $3.6 billion, the EPS number it would get is not $0.63, but $0.58. Why is this key? Because Wall Street's consensus estimate for KO EPS was $0.60, or right in the middle. And that, ladies and gentlemen, is how both Intel and now Coca Kola used the oldest trick in the accounting book to "beat" EPS: by using an unrealistically low tax rate.
Putting it all together, here is the LTM GAAP and non-GAAP EPS, and the resultant P/E ratios for the S&P on a 2015 forward basis (using Deutsche Bank's optimistic growth forecasts for the rest of 2015 which have Q4 2015 GAAP EPS projected to grow 23% from lastt Q4). As of this moment, with the S&P500 at 2130, the S&P 500 is trading at 18.1x forward (non-GAAP) PE based on 2015P EPS of 118, and an unprecedented 20.3x GAAP PE if one uses the far more realistic 105 GAAP EPS.
At this point the EPS accounting fudgery is so ridiculous, even 5-year-olds get it.
Today's market battle will be between those (central banks) "hoping" that a Greek deal over the weekend is finally imminent (which on one hand looks possible after a major backpeddling by Tsipras - who may never have wanted to win the Greferendum in the first place - yesterday in Brussels and today during his speech in the Euro Parliament, but on the other will be a nearly impossible sell to Greece as any deal terms will be far harsher than the deal offered by the Troika 2 weeks ago and will have no debt reduction), and those who finally noticed that the Chinese central planners have effectively lost control.
Investors are losing money, which strikes us as largely inevitable with asset prices where they are and economic growth and profits on a downward trajectory. Losing the least amount of money may be the best source of success this year.
To summarize: the first revenue drop for the S&P in 5 years, a major downward revision in EPS now expecting just 1% increase in 2015 EPS, a 25% cut to GDP forecasts, a machete taken to corporate profits and 10 Yields, and not to mention double digit sales declines for some of the most prominent tech companies in the world. And that, in a nutshell, is the "strong fundamentals" that everyone's been talking about.
An odd occurrence took place this past week in the “Land of Unicorns” aka Silicon Valley. The first of what was once described as the “future of social media” canary’s Twitter™, was suddenly struck by the “Where’s The Money” kingdom aka Wall Street. Suddenly, what was once the dulcet tones for acquiring investment capital “eyeballs to monetize” is now being answered by the investment crowd in a much more sobering tone of “Where’s the monetized money?!”
The current bubbles are so large and fragile that air is already coming out with rates still locked at zero. However, unlike prior bubbles that pricked in response to Fed rate hikes, the current bubble may be the first to burst without a pin. It appears the Fed fears this and will do everything it can to avoid any possible stress. That is why Fed officials will talk about raising rates, but keep coming up with excuses why they can’t. Larry Lindsey will be right that the markets will eventually force the Fed to raise rates even more abruptly if it waits too long to raise them on its own. But he grossly underestimates the magnitude of the rise and the severity of the crisis when that happens. It won’t just be the end of a raging party, but the beginning of the worst economic hangover this nation has yet experienced.
Greek Economy In "Doomsday" Tailspin: 59 Businesses, 613 Jobs Lost Each Day, Suppliers Demand Cash Up FrontSubmitted by Tyler Durden on 06/10/2015 09:50 -0500
While the Greek government has wasted the past 4 months experiment with game (and hope) theory-based negotiations with the Troika, debating what reforms it should implement, what the budget surplus should be, and how much of a pension and wage haircut the local workforce should undergo just to keep the trickle of European money flowing and "allow" the IMF to repay Greek IMF obligations and the ESM to repay the ECB, the Greek economy has slammed into a brick wall because according to Greece's retailers association, about 59 businesses close down and some 613 jobs are being lost each day.
Just days after JPMorgan revealed it would fire another 5,000 by the end of the year in a "scalpel" headcount reduction, overnight the world's favorite drug money laundering bank HSBC unleashed the "machete" and announced it would cut almost 50,000 workers, or one in five bankers, a move which would shrink the investment bank division by one-third. The reason: the same why US corporations are laying off tens of thousands so they can fund record stock buybacks and enrich their shareholders - to boost profits so that more money can be channeled in the form of dividends.
The Non-GAAP Revulsion Arrives: Experts Throw Up All Over "Made Up, Phony, Smoke And Mirrors" NumbersSubmitted by Tyler Durden on 06/08/2015 09:31 -0500
After years of crusading against the farce of non-gAAP "earnings" by management teams who are engaging in fraud against their shareholders, one in which both accountants, bank advisors and regulators are all complicit, we are delighted to see that finally the mainstream press has taken the bullshit that is non-GAAP "EPS" to task. In a report by AP's Bernard Candon, titled "Experts worry that 'phony numbers' are misleading investors" we read that the "record profits that companies are reporting may not be all they're cracked up to be." He was being very polite.
If any evidence was needed that the market is dying at the zero bound, it came in this week’s violent 15-minute rip when the algos read the Fed’s release to mean there will be no rate hike in June. It put you in mind of monetary rigor mortis - the last spasm of something that’s already dead but doesn’t know it. The Great Financial Bubble dying at the zero bound has been inflating with just three interruptions - 1987, 2000 and 2008-09 - for the last 33 years. As a result, the market value of stocks, bonds and other debts have simply become decoupled from national income.
How is it that the company's GAAP EPS declined by a whopping 17%, from $0.66 to $0.55, and yet its non-GAAP EPS dropped by a tiny 1% from 0.88% to 0.87%? This is how...
In welfare state America its virtually certain that through one artifice or another taxes will go up and the national debt burden will rise to crushing heights in order to keep the baby boomers’ entitlements funded. While Keynesians and Wall Street stock peddlers are clueless about the implications of this - it actually doesn’t take too much common sense to get the drift. Namely, under a long-term path of fewer producers, higher taxes and more public debt, the prospects for rejuvenating the previous historically average rates of real output growth are somewhere between slim and none - to say nothing of the super-normal rates implied by the markets’ current bullish enthusiasm.
Three days ago, when looking at the unprecedented, record outflows from US equities we asked a simple question: "who is buying... no really". We now have the answer.