x

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.

GAAP and Non-GAAP EPS Differences

As of today, all of the companies in the Dow Jones Industrial Average (DJIA) have reported actual EPS for Q2 2017. What percentage of these companies reported non-GAAP EPS for Q2 2017? What was the difference between non-GAAP EPS and GAAP EPS for companies in the DJIA for Q2 2017?

DJIA-Average-And-Media-Difference-Between-Non-Gaap-And-Gaap-EPS

For Q2 2017, 21 of the 30 companies in the DJIA (or 70%) reported non-GAAP EPS in addition to GAAP EPS for the quarter. Of these 21 companies, 17 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 20.0%, while the median difference between non-GAAP EPS and GAAP EPS for all 21 companies was 18.1%.

For Q2 2016, 21 of the 30 companies in the DJIA (or 70%) also reported non-GAAP EPS in addition to GAAP EPS for the quarter. Of these 21 companies, 17 also 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 66.4%, while the median difference between non-GAAP EPS and GAAP EPS for all 21 companies was 13.0%.

DJIA-Average-and-media-year-over-year-growth-in-EPS-for-Q2-2017

Due in part to the smaller gap (on average) between non-GAAP EPS and GAAP EPS in Q2 2017 relative to Q2 2016, companies in the DJIA reported higher average and median year-over-year growth in GAAP EPS compared to non-GAAP EPS for Q2 2017. For the 21 companies in the DJIA that reported non-GAAP EPS for Q2 2017, the average non-GAAP EPS growth rate was 45.3%, while the median non-GAAP EPS growth rate was 5.2%. For these same 21 companies, the average GAAP EPS growth rate for Q2 2017 was 89.9%, while the median GAAP EPS growth rate for Q2 2017 was 15.5%.

Thirteen of these 21 companies reported higher GAAP EPS growth than non-GAAP EPS growth for Q2 2017, including Verizon, Microsoft, and Intel.  On a non-GAAP basis, Verizon reported EPS growth of 2% ($0.96 vs. $0.94) for Q2 2017. On a GAAP basis, Verizon reported EPS growth of 529% ($1.07 vs. $0.17).  On a non-GAAP basis, Microsoft reported EPS growth of 42% ($0.98 vs. $0.69) for Q2 2017.  On a GAAP basis, Microsoft, reported EPS growth of 113% ($0.83 vs. $0.39). On a non-GAAP basis, Intel reported EPS growth of 22% ($0.72 vs. $0.59) for Q2 2017.  On a GAAP basis, Intel reported EPS growth of 115% ($0.58 vs. $0.27). 

DJIA: Top 5 Highest % Difference Between Non-GAAP EPS & GAAP EPS* for Q2 2017

Company

Ticker

Non-GAAP EPS

GAAP EPS

Difference (%)

 General Electric Company

GE

0.28

0.15

86.7%

 Coca-Cola Company

KO

0.59

0.32

84.4%

 DuPont

DD

1.38

0.97

42.3%

 Merck & Co., Inc.

MRK

1.01

0.71

42.3%

 Pfizer Inc.

PFE

0.67

0.51

31.4%

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

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Senior Earnings Analyst
John’s 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, Financial Times, The New York Times, MarketWatch, and Yahoo! Finance.

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