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Did DJIA Companies Report Higher Non-GAAP EPS in Q3?

Earnings

By John Butters  |  November 18, 2016

While all publicly traded U.S companies report EPS on a GAAP (generally accepted accounting principles) basis, many U.S. companies also choose to report EPS on a non-GAAP basis. There are mixed opinions in the market about the use of non-GAAP EPS. Supporters of the practice argue that it provides the market with a more accurate picture of earnings from the day-to-day operations of companies, as items that companies deem to be one-time events or non-operating in nature are typically excluded from the non-GAAP EPS numbers. Critics of the practice argue that there is no industry-standard definition of non-GAAP EPS, and companies can take advantage of the lack of standards to (more often than not) exclude items that have a negative impact on earnings to boost non-GAAP EPS.

As of today, all of the companies in the Dow Jones Industrial Average (DJIA) have reported EPS for Q3 2016. What percentage of these companies reported non-GAAP EPS for Q3 2016? What was the average difference and median difference between non-GAAP EPS and GAAP EPS for companies in the DJIA for Q3 2016? How did these differences compare to last year?

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For Q3 2016, 21 of the 30 companies in the DJIA (or 70%) reported non-GAAP EPS in addition to GAAP EPS for the third quarter. Of these 21 companies, 16 reported non-GAAP EPS that was higher than GAAP EPS. The average difference between non-GAAP EPS and GAAP EPS for all 21 companies was 181.1%, while the median difference between non-GAAP EPS and GAAP EPS for all 21 companies was 10.4%. The average difference between non-GAAP EPS and GAAP EPS for the DJIA was unusually large because of DuPont. For Q3 2016, DuPont reported non-GAAP EPS of $0.34 and reported GAAP EPS of $0.01. Thus, the percentage difference between non-GAAP EPS and GAAP EPS for DuPont for Q3 was 3300%. Excluding DuPont, the average difference between non-GAAP EPS and GAAP EPS for the remaining 20 DJIA companies was 24.7%.

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For Q3 2015, 19 of the 30 companies in the DJIA (or 63%) reported non-GAAP EPS in addition to GAAP EPS for the quarter. Of these 19 companies, 16 reported non-GAAP EPS that was higher than GAAP EPS. The average difference between non-GAAP EPS and GAAP EPS for all 19 companies was 17.1%, while the median difference between non-GAAP EPS and GAAP EPS for all 19 companies was 10.6%.

Thus, the average difference between non-GAAP EPS and GAAP EPS for the Dow 30 was larger in Q3 2016 relative to Q3 2015. However, the median difference between non-GAAP EPS and GAAP EPS for the Dow 30 in Q3 2016 was nearly equal to the median difference in Q3 2015. While more DJIA companies reported non-GAAP EPS in Q3 2016 (21) compared to Q3 2015 (19), the same number of DJIA companies (16) reported non-GAAP EPS that exceeded GAAP EPS in both quarters.

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Companies in the DJIA reported higher average and median year-over-year growth in non-GAAP EPS compared to GAAP EPS for Q3 2016. For the 21 companies in the DJIA that reported non-GAAP EPS for Q3 2016, the average non-GAAP EPS growth rate was 10.8%, while the median non-GAAP EPS growth rate was 5.1%. For these same 21 companies, the average GAAP EPS growth rate for Q3 2016 was -3.7%, while the median GAAP EPS growth rate for Q3 2016 was -1.2%.

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John Butters

Vice President, Senior Earnings Analyst

Mr. John Butters is Vice President and Senior Earnings Analyst at FactSet. His weekly research report, “Earnings Insight,” provides analysis and commentary on trends in corporate earnings data for the S&P 500 including revisions to estimates, year-over-year growth, performance relative to expectations, and valuations. He is a widely used source for the media and has appeared on CNBC, Fox Business News, and the Business News Network. In addition, he has been cited by numerous print and online publications such as The Wall Street Journal, The Financial Times, The New York Times, MarketWatch, and Yahoo! Finance. Mr. Butters has over 15 years of experience in the financial services industry. Prior to FactSet in January 2011, he worked for more than 10 years at Thomson Reuters (Thomson Financial), most recently as Director of U.S. Earnings Research (2007-2010).

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