Divide Between GAAP and Non-GAAP EPS for the DJIA Reverted to Normal in Q1

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 exclude items that (more often than not) 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 actual EPS for Q1 2018. What percentage of these companies reported non-GAAP EPS for Q1 2018? What was the median difference between non-GAAP EPS and GAAP EPS for companies in the DJIA for Q1 2018? How did this difference compare to recent quarters?

For Q1 2018, 22 (or 73%) of the 30 companies in the DJIA reported non-GAAP EPS in addition to GAAP EPS for the first quarter. Since 2016, 71% of companies in the DJIA have reported non-GAAP EPS in addition to GAAP EPS on average. Of these 22 companies, 18 (or 82%) reported non-GAAP EPS that exceeded GAAP EPS. Since 2016, 78% of companies in the DJIA reported non-GAAP EPS that exceeded GAAP EPS on average. The median difference between non-GAAP EPS and GAAP EPS for all 22 companies was 13.6%. Since 2016, the median difference between non-GAAP EPS and GAAP EPS has been 13.4%.

Thus, after a significant increase in both the number of DJIA companies reporting non-GAAP EPS and the median difference between non-GAAP EPS and GAAP EPS in the fourth quarter due to charges and gains related to the tax law, both numbers reverted to levels seen in previous quarters in the first quarter. 

*Non-GAAP EPS and GAAP EPS from continuing operations were used when provided

DJIA: Top 5 Non-GAAP EPS > GAAP EPS* for Q1 2018

*Non-GAAP EPS and GAAP EPS from continuing operations were used when provided

^NKE provided the EPS impact of charges related to the tax law, which were excluded from GAAP EPS to calculate non-GAAP EPS