“Headline” Earnings Versus GAAP Earnings
Various terms including operating earnings, non-operating earnings, discontinued operations, and unfunded pension liabilities, and the impact of these on future GAAP earnings need to be well understood before any assessment of GE’s future prospects. I analyze and summarize the multitude of various costs and earnings figures provide by GE on a GAAP and non-GAAP basis and reconciles these various and divergent figures, in a way which is not readily found in the GE reporting. A particular aim of TABLE 1 below is to provide a clear understanding of what is and is not included in “headline” GE EPS guidance, and the impact of these various elements on future earnings.
The headline numbers used by GE, in quarterly earnings releases and guidance, are the “OPERATING EARNINGS (after tax)”, highlighted in yellow in TABLE 1 above. But there are other elements that result in significantly lower GAAP based net income compared to the headline operating earnings. TABLE 1 reveals 2016 operating earnings of $13.6bn were reduced by $5.4bn to $8.2bn due to these other elements. For 1st half 2017, the situation was even worse, with operating earnings of $4.2bn more than halved to $1.8bn due to these elements. It is necessary to understand whether and for how long these other elements will continue to weigh on GE’s overall results, because they do represent real losses that have to be covered by operating earnings. And they do impact on decisions on the level of dividends and share repurchases.
At The Operating Segments Level, Earnings Growth Has Been relatively Flat
From TABLE 1,it can be seen total segment profit (highlighted in blue), on an Earnings Per Share ((NYSEARCA:EPS)) basis, was up by 8.9% for FY 2016 versus 2015, and up by 8.2% for first half 2017 versus first half 2016. But, total segment profit growth in dollar terms, for FY 2016 versus FY 2015, was relatively flat. Continuing operating segment profit for 2016 of…