Breaking up is hard to do.
But that’s no excuse for General Electric Co.’s
GE,
third-quarter earnings release early Tuesday to include quite so many nonstandard, non-GAAP numbers; to fail to include consolidated numbers; or to fail to offer a balance-sheet update.
GAAP, or generally accepted accounting principles, is a standard U.S. companies are obliged to follow.
A GE spokeswoman reiterated the company’s view that non-GAAP numbers “help investors compare results from period to period more easily, as well as better evaluate the underlying performance of our businesses.”
And she noted that the company filed its 10-Q with the Securities and Exchange Commission with full financial statements ahead of its investor call, so that investors had all relevant information and context. “That’s why we no longer include them in the press release,” she said.
But the release, as the first statement received by reporters, sets the tone for how the numbers are received. And in the blur of a busy earnings day, many reporters lack the time to look up a regulatory filing.
From the archive: GE’s earnings report can still frustrate investors, reporters
The company did offer an update on the spinoff of its power and renewable-energy businesses as GE Vernova, which will take place at the beginning of the second quarter of 2024. That will leave its aerospace business as a stand-alone company that will continue to trade on the New York Stock Exchange under the ticker symbol “GE.” GE Vernova will trade under the ticker “GEV.”
The move will mark the final step in the breakup of the industrial conglomerate, which has already spun off its healthcare business.
Because of that, Tuesday’s release focused on the individual businesses with far less emphasis on the consolidated numbers. It was Page 7 of the report before a consolidated net income number could be found, and that was confusingly placed under the headline “Adjusted Earnings (Loss) (Non-GAAP)”.
Companies are allowed to offer non-GAAP numbers as long as they give the GAAP numbers equal prominence and offer a reconciliation of the two. But that was not available in the press release, which offered a “continuing” EPS number of 8 cents and adjusted EPS of 82 cents.
The adjusted number “excludes insurance, non-operating benefit costs, gains (losses) on retained and sold ownership interests and other equity securities, restructuring &other charges, and other items,” according to a footnote.
In the table, the company included adjusted revenue — by removing insurance revenue, as that’s a runoff business.
The release was a stark reminder of the days when GE would report four EPS numbers, a practice MarketWatch repeatedly called out as at best confusing and at worst misleading to investors.
“GE is back to its old habit of de-emphasizing its GAAP numbers by presenting a bundle of mixed alternative metrics. It may be because they are splitting up and not focused on the company as a whole, but it is still confusing to anyone looking for the big picture,” said Francine McKenna, an investigative journalist, educator, blogger, and commentator specialized in accounting. McKenna, a former lecturer at the University of Pennsylvania’s Wharton School, is a former MarketWatch journalist.
GE’s stock enjoyed its biggest rally in two years after the report as the adjusted EPS number and revenue were well above consensus estimates.
“Overall, a very strong quarter for GE, one that gives us confidence and thus allows us to raise our full-year guide,” said Chief Executive Larry Culp in the post-earnings conference call with analysts, according to an AlphaSense transcript.
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