A Very Quick Look at Kingfisher's Earnings

LONDON -- Are profits at Kingfisher (LSE: KGF.L  ) distorted by unusual items?

Right now I'm trawling through the FTSE 100 and double-checking for blue chips that may be flattering their profits.

You see, many companies these days report "underlying earnings," which are calculated by excluding costs the firm deems to be "exceptional." Trouble is, some companies are more cavalier than others when it comes to sweeping awkward costs away from the headline figures.

Today I'm looking at Kingfisher to see if its reported earnings have been distorted significantly by exceptional, one-off, or unusual items. I've extracted the following statistics courtesy of S&P Capital IQ:

Year to January

2008

2009

2010

2011

2012

Profit before unusual items (million pounds)

357

327

549

677

809

Restructuring charges (million pounds)

(35)

(126)

0

(9)

2

Impairment of goodwill (million pounds)

0

(124)

0

0

0

Other unusual items (million pounds)

5

0

0

0

(11)

While annual figures can provide some insight into how a business has performed, I reckon looking back over several years provides a better view of possible problems in relation to one-off costs.

So between 2008 and 2012, my stats tell me Kingfisher reported cumulative profits before exceptional items and tax of 2,719 million pounds. However, aggregate exceptional costs came to 298 million pounds -- equivalent to a notable 11% of cumulative "underlying" profits.

Even though Kingfisher's exceptional costs occurred mostly in a particular year, there may be times in the future -- prompted perhaps by restructures, reorganizations, or recessions -- when further money could be lost to "one-off" events.

So while I think these earnings numbers and unusual costs by themselves do not indicate obvious or immediate trouble at Kingfisher, they are certainly something to monitor if you're a shareholder, just in case.

Indeed, I am sure Kingfisher shareholders don't really want to see 11% of their profits disappear every five years!

Somebody who always studies earnings numbers in detail is Neil Woodford, the U.K.'s leading equity income fund manager. Woodford's portfolios thrashed the FTSE 100 during the 15 years to 2011, and this free Motley Fool report -- which can be downloaded for a limited time only -- reviews his favorite blue chip shares for 2013 and beyond.

Are you looking to profit from this uncertain economy? "10 Steps to Making a Million in the Market" is the very latest Motley Fool guide to help Britain invest. Better. We urge you to read the report today -- it's free.

Further Motley Fool investment opportunities:

Maynard Paton does not own any share mentioned in this article. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

DocumentId: 2025660, ~/Articles/ArticleHandler.aspx, 4/16/2014 3:25:35 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

TREND TRACKER: Get Rich When the Web Goes Dark

It's time to say "goodbye" to your Internet! One bleeding-edge technology is about to put the World Wide Web to bed. And if you act right away, it could make you wildly rich. Experts are calling it the single largest business opportunity in the history of capitalism… The Economist is calling it "transformative"... but you'll probably just call it "how I made my millions." Big money is already on the move. Don't be too late to the party – find out the 1 stock to own when the Web goes dark.


Advertisement