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Things Left Unsaid

Perhaps hourly we here at Fool HQ receive notes from folks who want us to concentrate on some company or another based on its just-reported earnings. Did you ever notice that, even in the worst of times, companies are able to report something to be excited about?

Let me give an example.

Company X: "We believe that our company has never been better positioned to grow profitability."

Bill's Translation: "Our most recent earnings and performance were so bad, there's really only one way we can go without employing shovels."

Company Y: "Our results were impacted by unexpected patterns in the weather, the shorter work week, and halitosis."

Bill's Translation: "We lied."

It's understandable that companies want to present themselves in as positive a light as possible. In fact, each time you receive a company's earnings release, an easy smell test is to ask yourself this question: Is the company's purported "great news" even relevant?

Seriously, a company that harps on how many new last names it has collected is likely telling you something else that's important: The stuff it's not talking about is really bad. So if you start seeing data points that make as much sense as having porcupines in petting zoos, look out.

Similarly, when companies change what they focus on, or how they present it, in their earnings releases, you can count on one thing: The stuff they focused on before didn't put the company in a good light. Further, it might be a really good idea to find out why. And when you see companies including things like investment gains in ordinary income -- as Intel (Nasdaq: INTC  ) , Microsoft (Nasdaq: MSFT  ) , and Apple (Nasdaq: AAPL  ) were wont to do during the heady days of yore -- you need to figure out what the real story is.

Fortunately, companies, like slugs, leave trails. They may not tell you they're changing their focus, but it's easy enough to check. At random, I selected a company, Dean Foods (NYSE: DF  ) , and reviewed its old earnings press releases.

As it turns out, Dean Foods announced its 2003 year-end earnings last week. The company's press release began by mentioning annual diluted earnings per share growth of 14%. Then, in order, it mentioned earnings per share, net income, revenues, and pro forma net income. Later in the release, the company discussed net income growth for the quarter. The growth in the fourth-quarter earnings as compared to last year's fourth quarter was not as high as annual growth compared to last year.

So, let's go back a year and look at the press release for year-end 2002. Here's where it gets interesting. In 2002, Dean Foods knocked the cover off the ball for the fourth quarter as compared to 2001, growing revenue 39%. It also notes -- in bold -- pro forma earnings, a share repurchase, and guidance.

So, whereas in 2003 the year was the more impressive period for the company, in 2002 it was just the fourth quarter. So guess what the press release led off with in 2002? You bet -- fourth-quarter results, with full-year numbers getting treatment farther down the page.

Dean Foods, as it turns out, is a good example, for while the company puts its best foot forward in each release, at least all the data matters. So Dean Foods passes the smell test. But comparing company announcements with releases from quarters and years past is a good, quick way to discover whether a company is hiding bigger, stinkier concerns below when all smells rosy on the surface.

Bill Mann owns none of the companies mentioned in this article.

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