Little beamy
one more bit for your education about playing with costs
BTW take something for your nerves :-))
and do not forget to say thank for valuable information
about regulations <gggg>
Regards
-Misleading Snake
Five Simple Truths About U.S. Corporate Earnings: David Wilson
2001-08-20 06:08 (New York)
Five Simple Truths About U.S. Corporate Earnings: David Wilson
(Commentary. David Wilson is a columnist for Bloomberg News.
The opinions expressed are his own.)
Princeton, New Jersey, Aug. 20 (Bloomberg) -- Now that the
deluge of second-quarter earnings reports by U.S. companies has
subsided, it's worth contemplating what these releases really
disclosed about their performance.
With that in mind, here are five simple truths that one can
take away from all those press releases, conference calls, analyst
reports and Securities and Exchange Commission filings of the past
few weeks.
While there undoubtedly are many more, one has to start
somewhere in making sense of all the statistics and people's
explanations for them. So without further ado:
1) ``A penny for your thoughts'' has become ``a penny for
your investors.''
The new twist on the old saying refers to the difference
between a company's per-share earnings and the average estimate
among analysts surveyed by Thomson Financial/First Call.
Among companies in the Standard & Poor's 500 Index that
reported quarterly results since July 1, 19 percent surpassed
First Call's average by one cent a share. AT&T Corp., Citigroup
Inc., Du Pont Co., Minnesota Mining & Manufacturing Co., Procter &
Gamble Co. and United Technologies Corp. were all among them.
The percentage compares favorably with the 29 percent of S&P
500 companies whose earnings matched the First Call average. It's
also three times the comparable figure for companies whose profit
was one cent lower.
2) ``Goodwill'' often isn't good. ``Purchase premium'' would
be a better choice of words.
What's good about a $38.7 billion charge? JDS Uniphase
Corp.'s shareholders had reason to ask that question after the
company, whose fiscal year ended in June, reported the largest
full-year loss in U.S. corporate history: $50.6 billion.
The charge taken by the largest producer of equipment for
fiber-optic networks stemmed from earlier decisions to pay far
more than book value, or the value of assets after subtracting
debt, for other companies.
Accountants define the difference between purchase price and
book value -- the premium, in other words -- as ``goodwill.'' JDS
Uniphase reduced the value of this asset, indicating the acquired
companies were no longer worth what it paid for them.
Goodwill also led to second-quarter charges of $4.8 billion
before taxes at Corning Inc., the larger producer of fiber-optic
cable, and $9.9 billion at Verisign Inc., a provider of network-
security services and manager of Internet addresses.
3) ``One-time'' has acquired a new meaning, especially when
used before ``charges.''
Wal-Mart Stores Inc.'s second-quarter results, among others,
used one-time in the traditional way: to characterize events that
happen only once. The largest U.S. retailer took a reorganization
charge, estimated at 1 cent a share, after buying a stake in its
Walmart.com Web site from Accel Partners, a venture-capital firm.
One-time also means former, though, and that interpretation
increasingly applies to earnings reports. Some events happen with
such regularity that they really don't merit the special treatment
they receive. In fact, the opposite may well be true.
Cisco Systems Inc., the largest maker of computer-networking
equipment, illustrates the point. The fiscal fourth quarter ended
in July was the first quarter in nine without a charge to reduce
the value of research and development by an acquired company.
4) There's no form to ``pro forma.''
Companies use this phrase to describe their preferred measure
of earnings, whatever it might be. Items excluded from net income
to arrive at this measure can vary considerably from one company
to the next.
Intel Corp., for example, omitted only acquisition-related
costs -- such as goodwill -- from the ``pro forma supplemental
information'' in its second-quarter earnings release.
Yahoo! Inc., the most often-used Internet search service,
excluded not only these costs but also restructuring charges,
expenses for stock compensation, payroll taxes on employees' stock-
option gains, and investment income.
Cisco went one step further than Yahoo. The company excluded
a charge for worthless inventory from the fiscal third quarter --
and a fourth-quarter gain from using some of the components, too.
5) When executives talk about ``visibility,'' they aren't
referring to the weather.
``Visibility'' instead describes people's ability to project
how companies will perform, especially when it comes to earnings.
When someone says a company has ``low earnings visibility,'' for
instance, the person making the statement can't say for sure how
much money it will make.
Statements such as this are being made more often this year.
As the Financial Times reported last Monday, almost three times as
many companies have used the word in earnings releases than during
the same period last year.
Companies don't always fall back on ``visibility,'' though.
Here's what Hewlett-Packard Co.'s release quoted Chief Executive
Carly Fiorina as saying about the outlook for the second-largest
computer company: ``Market conditions remain far too dynamic to
predict outcomes.''
Nevertheless, her comments suggest that Hewlett-Packard can't
clearly see what lies ahead -- a problem that might affect anyone
who has to wade through too many company earnings reports. That's
one more simple truth to consider.
--David Wilson in the Princeton newsroom (609) 279-4085 or
dwilson@bloomberg.net/jmg
Story illustration: For exclusive analysis of U.S. corporate
earnings reports, click on {BBEA9 <GO>}. To comment on this
column, click on {LETT <GO>} and send a letter to the editor.
Company news:
T US <Equity> CN
C US <Equity> CN
DD US <Equity> CN
MMM US <Equity> CN
PG US <Equity> CN
UTX US <Equity> CN
JDSU US <Equity> CN
GLW US <Equity> CN
VRSN US <Equity> CN
WMT US <Equity> CN
CSCO US <Equity> CN
INTC US <Equity> CN
YHOO US <Equity> CN
HWP US <Equity> CN
Industry news:
NI US
NI COS
NI ERN
NI STK
NI WIN
NI FEA
NI WILSON
NI COLUMNISTS
-0- (BN ) Aug/20/2001 10:08 GMT |
