How Alcoa Just Smashed Earnings Expectations

Moments ago Alcoa did what it always does following the now traditional several weeks of guidedowns heading into the earnings release that until recently used to kick off the earnings season for the Dow Jones Industrial Average (at least until Alcoa was unceremoniously kicked out): it beat, and beat significantly, with Wall Street expecting $0.27 in Q4 EPS, Alcoa reported a whopping $0.33, a material beat to expectations.

Terrific job, and yet regular readers know that while some companies boost their buybacks and other fudge their tax-rate to beat EPS, Alcoa is known for something different: parking as many costs as possible into the "one-time, non-recurring" category, and thus getting non-GAAP addback "benefits" for these.

Sure enough, this is precisely what happened in Q4, when Alcoa recorded a whopping $388 million in "addbacks", which also happens to be the second largest addback to in the past 4 years.

 

Putting this number in context: GAAP EPS: $159, which however is pre-addbacks, a tiny $0.11 per share. Net of addbacks, however, this number surges to $432 million after tax, or three times higher, $0.33 EPS!

In other words, two-thirds of Alcoa's beat in the quarter was due to what management thought was another quarter of recurring "non-recurring", non-one time "one-time" charges.

What about the full year? Well, GAAP EPS was a measly $268 million or $0.21 EPS. However, when one adds back a whopping $1.2 billion pretax in one-time charges, what does one get? Why net income of $1.1 billion, or $0.92 EPS. Non-GAAP that is. Because only for Alcoa is the difference between GAAP and Non-GAAP some 75%. Visually:

And that concludes today's lesson on hitting your non-GAAP bogey thanks to a year of record "restructuring" addbacks.