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 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?
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%.
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