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.
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.