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 nonoperating 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.
Which Companies Reported Non-GAAP EPS in Q3 2018?
As of today, all of the companies in the Dow Jones Industrial Average (DJIA) have reported actual EPS for Q3 2018. What percentage of these companies reported non-GAAP EPS for Q3 2018? What was the median difference between non-GAAP EPS and GAAP EPS for companies in the DJIA for Q3 2018? How did this difference compare to recent quarters?
For Q3 2018, 20 (or 67%) of the 30 companies in the DJIA reported non-GAAP EPS in addition to GAAP EPS for the third quarter. Since Q1 2016, 72% of companies in the DJIA have reported non-GAAP EPS in addition to GAAP EPS on average. Of these 20 companies, only 12 (or 60%) reported non-GAAP EPS that exceeded GAAP EPS. Since Q1 2016, 77% of companies in the DJIA have reported non-GAAP EPS that exceeded GAAP EPS on average.
The third quarter marked the lowest number of companies in the DJIA reporting non-GAAP EPS that exceeded GAAP EPS since FactSet began actively tracking this metric for the DJIA in Q1 2016. As a result, the median difference between non-GAAP EPS and GAAP EPS for all 20 companies was 3.9%. Since Q1 2016, the median difference between non-GAAP EPS and GAAP EPS has been 13.3%. Thus, the third quarter marked the lowest median difference between non-GAAP EPS and GAAP EPS since FactSet began actively tracking this metric for the DJIA in Q1 2016. All metrics reflect GAAP EPS (and non-GAAP EPS) from continuing operations when provided.
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.