Dow Companies Report Significant Profit Adjustments in Q4
In the world of finance, the reporting of quarterly profits is a critical aspect that provides insights into a company’s financial health. However, alongside the figures that adhere to accounting standards, many companies also report adjusted versions of their profits. These adjusted figures aim to show what a company’s bottom line would look like if certain standards and financial impacts were not taken into account. In the fourth quarter of 2021, the difference between these two types of profit was wider than usual for the 30 companies in the Dow Jones Industrial Average, according to a FactSet analysis.
The analysis revealed that the median difference between per-share profit reported based on generally accepted accounting principles (GAAP) and the adjusted non-GAAP earnings stood at 31%. This is significantly higher than the five-year average difference of 11.7%. It is also the fourth-largest difference since FactSet began tracking this data in 2016. The last time such a wide gap was observed was during the second half of 2020, when the global pandemic disrupted the economy.
Among the Dow companies, drugstore chain Walgreens Boots Alliance Inc. reported the biggest difference, with a spread of 925%. The company attributed this to challenging retail market trends in the U.S. and a higher tax rate. Other companies with notable differences include Dow Inc., Verizon Communications Inc., Merck & Co., Salesforce Inc., and Johnson & Johnson.
The adjustments made by companies to their profit figures have long been a subject of debate among executives and investors. Supporters argue that these adjustments provide a more accurate picture of earnings from day-to-day operations, excluding one-time events and non-operating factors. Critics, on the other hand, believe that the lack of industry-standard definitions for non-GAAP earnings per share allows companies to manipulate their profits by excluding items that have a negative impact.
Looking ahead, several retailers are set to report their earnings, including Target Corp., Costco Wholesale Corp., and Kroger Co. These results will shed light on consumer spending patterns and provide insights into the retail industry’s performance. Additionally, clothing chain Gap Inc. will report its results as it strives to revitalize its stores and improve marketing strategies. Other companies, such as Ross Stores Inc., Burlington Stores Inc., Nordstrom Inc., Foot Locker Inc., Abercrombie & Fitch, Victoria’s Secret & Co., Big Lots Inc., and American Eagle Outfitters Inc., will also release their earnings reports.
Outside of the retail sector, companies like Broadcom Inc., Marvell Technology Inc., and DocuSign Inc. are expected to announce their results. These diverse earnings reports will provide a comprehensive overview of various industries and their overall performance.
One company to watch closely is Target Corp., which has become a gauge for consumer spending on discretionary items. Unlike its competitor Walmart Inc., Target relies more on non-grocery products for its revenue. Analysts anticipate continued challenges in sales for Target, particularly in discretionary spending, despite improvements in customer traffic. Additionally, Kroger Co.’s earnings call will provide insight into grocery prices and consumer demand, especially amid growing regulatory pushback.
The fourth quarter of 2021 brought significant profit adjustments for Dow companies, highlighting the ongoing debate surrounding non-GAAP earnings figures. As the market eagerly awaits the upcoming earnings reports from various sectors, investors and analysts will closely analyze the results to gain a better understanding of the current financial landscape and future prospects for these companies.
