Getting Ridiculous: 70% Of Alcoa's LTM "Earnings" Are From Restructuring Charges

When the non-GAAP "consensus earnings" bogey that Alcoa has to hit has been cut by a third from $0.30 as of 6 months ago to just  $0.22 one would think the company's EPS should be an easy beat.


One would be wrong, because moments ago AA just reported non-GAAP EPS of $0.19, a big miss of the expected $0.22.

And we should stress non-GAAP, because as regular readers know when it comes to Alcoa's "earnings", it is all about restructuring charges. This quarter was no different and Klaus Kleinfeld's company decided to "charge off" another $217 million in "one-time, non-recurring" addbacks.

Wait, did we say "one-time, non-recurring"? The reality is that for Alcoa this is the 9th consecutive quarter in which it has booked more than $100 million per quarter in restructuring charges! 


Pperhaps at some point the FASB should take a peek at Alcoa's books for the greatest definition ever of just what "non-recurring" addbacks really mean.

And since we know it won't, here is the answer: in the past year, Alcoa has generated $643 million in clean, GAAP earnings. It has also taken a benefit for $991 million in restructuring charges. This means that of Alcoa's $1.4 billion in Non-GAAP LTM EPS, a whopping 70% of "earnings" come from non-one time, recurring "one-time, non-recurring" charges and addbacks.

At this point the EPS accounting fudgery is so ridiculous, even 5-year-olds get it.

And the real problem is that all S&P 500 companies do it, in fact of the 112 or so in projected non-GAAP EPS, some 15 or so is now totally fabricated "addbacks" which also means that the market's real P/E multiple is about 21x.

No wonder the NYSE has to break at the first more serious hint of selling.