Sales: 866.322.8738Support: 877.322.8738
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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 Q3 2017. What percentage of these companies reported non-GAAP EPS for Q3 2017? What was the average difference and median difference between non-GAAP EPS and GAAP EPS for companies in the DJIA for Q3 2017? How did these differences compare to recent quarters?

GAAP vs. Non-GAAP EPS

For Q3 2017, 21 (or 70%) of the 30 companies in the DJIA reported non-GAAP EPS in addition to GAAP EPS for the third quarter. Of these 21 companies, 16 (or 76%) reported non-GAAP EPS that exceeded GAAP EPS. Over the past six quarters (Q1 2016 – Q2 2017) 68% of the companies in the DJIA reported non-GAAP EPS in addition to GAAP EPS and 80% of these companies reported non-GAAP EPS that exceeded GAAP EPS.

For Q3 2017, 21 (or 70) of the 30 companies in the DJIA reported non-GAAP EPS in addition to GAAP EPS for the third quarter

Thus, slightly more companies in the DJIA reported non-GAAP EPS in Q3 2017 relative to the average of the past six quarters, while slightly fewer companies in the DJIA reported non-GAAP EPS above GAAP EPS in Q3 2017 relative to the average over the past six quarters.

For Q3 2017, the average difference between non-GAAP EPS and GAAP EPS for all 21 companies was 284.1.png

For Q3 2017, the average difference between non-GAAP EPS and GAAP EPS for all 21 companies was 284.1%, while the median difference between non-GAAP EPS and GAAP EPS for all 21 companies was 10.1%. The average difference between non-GAAP EPS and GAAP EPS for the DJIA was unusually large in the third quarter because of Merck. The company reported non-GAAP EPS of $1.11 and GAAP EPS of -$0.02 for the quarter. Thus, the percentage difference between non-GAAP EPS and GAAP EPS for Merck for Q3 exceeded 5000% (on an absolute basis). Excluding Merck, the average difference between non-GAAP EPS and GAAP EPS for the remaining 20 DJIA companies was 15.8%. Over the past six quarters, the average difference between non-GAAP EPS and GAAP EPS for companies in the DJIA was 72.8%, while the median difference between non-GAAP EPS and GAAP EPS was 13.4%.

DJIA: Top Five Non-GAAP EPS > GAAP EPS* for Q3 2017

COMPANY

TICKER

NON-GAAP EPS

GAAP EPS

DIFFERENCE (%)

 Merck & Co., Inc.

MRK

1.11

-0.02

5650.0%

 Wal-Mart Stores, Inc.

WMT

1.00

0.58

72.4%

 DowDuPont Inc.

DWDP

0.55

0.33

66.7%

 Coca-Cola Company

KO

0.50

0.33

51.5%

 Pfizer Inc.

PFE

0.67

0.47

42.6%

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

Thus, the average difference between non-GAAP and GAAP EPS for Q3 2017 was above the average of the past six quarters due to Merck. Excluding Merck, the average difference between non-GAAP EPS and GAAP EPS for the third quarter was below the average of the past six quarters. The median difference between non-GAAP and GAAP EPS in Q3 2017 was also below the median of the past six quarters.

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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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