Companies Confuse Investors With Incomplete Quarterly Earnings

Steve McDonald By Steve McDonald, Bond Strategist, The Oxford Club

Slap In The Face Award

Transcript:

Here’s a big slap in the face for anyone with money in the market.

It’s tough enough making money in the stock market without companies throwing earnings information curve balls. And that’s exactly what some of the biggest names in the business have been doing.

Ford’s most recent quarterly announcement was described by analysts as one of the most unclear to date.

The company failed to show its year-over-year numbers, which conveniently avoided addressing the loss it reported – year over year.

It reversed its financial tables so the prior year’s numbers, which were better than those of the most recent quarter, were read first. You needed to read the report from right to left to get to this quarter’s numbers.

The CFO’s comments addressed only the full-year numbers, which are expected to show a profit, and skipped the fact that it had an $800 million loss for the most recent quarter.

The result of these non-GAAP numbers (generally accepted accounting procedures) was that investors had to go to the company’s website to get accurate and understandable figures.

And that delay often contributes to a lot of confusion.


Netflix has been described as one of the worst offenders of this kind of confusion. Its recent report was so confused, its stock moved 10% before the news services were even able to report its most recent earnings numbers.

Institutions that use high-speed services that searched Netflix’s website for usable information have a clear advantage over retail stockholders who have to wait for the traditional news services to find and report the data.

United Technologies added a new level of confusion by reporting earnings in such a way that investors had to do their own math to get to net earnings. No one does that!

The SEC favors GAAP reporting. But it allows companies to use non-GAAP numbers as a supplement to GAAP figures, provided that they provide the GAAP numbers first, give both sets of numbers equal prominence and explain how they are reconciled.

But that isn’t what has been going on, and the SEC has sent 71 comment letters, wrist slaps for noncompliance, since last May. They’ve gone out to companies like General Electric, Coke, Hertz, Medtronic, Whirlpool, Tesla, Conoco Phillips and many more.

Earnings are the foundation of all investment decisions, and this kind of deceptive reporting will cost you money if you’re not aware.

Watch yourselves. As retired investors, we can’t afford major mistakes because of deceptive reporting. Make sure you know which number you’re reading.

If you’re not sure, get help from someone who can assist you with interpreting the right data or tracking it down from a reliable source.

Good investing,

Steve