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  • Dow's earnings are not all they are cracked up to be.
    Headline: Dow Corning Reports Sales and Profits for the Third Quarter of 2009

    Profits? really. I don't see any quality profits here. Dow's not lying but they are misleading to th tune of about 1B.

    A quick look at Dow's net income shows a jump from 428m last year to 711m this year. At first glance that looks great and shows signs of improvement. However, like always, the devil is in the quality of those earnings.

    Sundry income (expense), for example went form (34) in 08 to 813 in 09 or a difference of 847m. A quick look at the footnote shows:
    Sundry income (expense) – net includes a variety of income and expense items such as the gain or loss on foreign currency exchange, dividends from investments, and gains and losses on sales of investments and assets. Sundry income (expense) – net for the third quarter of 2009 was income of $813 million, compared with expense of $34 million in the same quarter of 2008. Year to date, sundry income (expense) – net was income of $833 million, compared with income of $49 million in the first nine months of 2008. The increase in 2009 was due to a pretax gain of $513 million on the sale of the Company’s ownership interest in TRN, a nonconsolidated affiliate, and related inventory on September 1, 2009, and a pretax gain of $328 million on the sale of the Company’s ownership interest in OPTIMAL, nonconsolidated affiliates, on September 30, 2009. Sundry income (expense) - net for the quarter was reduced by a loss of $56 million related to the Company’s early extinguishment of debt in the third quarter of 2009. See “Changes in Financial Condition” for additional information regarding the Company’s early extinguishment of debt.

    Clearly this is non recurring. So let's take that 813m off 09 and the (34) off 08. Now our totals are -102m this year and +462 last year.

    There are some other funky things going on but i think you get the point on how DOW took advantage of GAAP earnings to report low quality earnings.

    For more, check out the quality or earnings blog. The author holds no position in DOW.
    Tags: DOW
    Nov 01 2:21 PM | Link | Comment!
  • Lockheed Martin earnings down! Don't believe the headline.
    Lockheed Martin, those sly dogs, is trying to convince you that profits are up year-over-year. However a closer look reveals those "profits" are nothing more then GAAP profits; they are non-reoccurring and non-operational. GAAP doesn't tell the whole story.

    Operating profits were down 12.6% so how is it that Lockheed is telling you profits went up 4.5%

    Lockheed reported net earnings of $797m in Q3 09 and $782m in Q3 08 (2.09 and 1.97 were the respective EPS amounts). Operating profit however, was $1,085m in 09 and $1,242 in 08. So why the difference in net income?

    Remove "Other Non-Operating Income (Expense)" from the equation and net income drops 54m in 09 and increases 13m in 08. That alone makes net income 743 in 09 and 795 in 08. Take away the tax rate changes and adjustments (+$54m for 09) and (+$28m in 08) and you get a rough, but more accurate comparison of year-over-year performance of $689 in 09 and $767 in 08. Profits didn't go up 4.5% they went down 10% on a net basis. EPS (on a fully diluted basis) thus becomes $1.79 in Q3 09 and $1.88 in Q3 09 (fully diluted shares were down ~22m).

    The author holds no position.

    Like this post? Check out The Quality Of Earnings blog!
    Tags: LMT
    Oct 23 5:45 PM | Link | Comment!
  • WD 40: A conservative approach to earnings
    I always appreciate it when companies are conservative.

    Income at Wd-40 is better than it appears.

    The company (incorrectly) includes asset impairment charges as operating. Taking out the impairment charges actually shows an increase in operating earnings YOY.

    For 2009 the company includes impairment charges of 6.7m and 1.3m in 08. removing those charges from operating earnings (i.e., adding them back) yields 46,555 for 09 and 44,036 for 08 or an increase of 2.5m (or $0.15 per share)

    This was origionally posted at Quality of Earnings. Check us out!
    The author holds no position in
    Tags: WDFC
    Oct 18 10:39 AM | Link | Comment!
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