A Very Quick Look at British American Tobacco's Earnings

LONDON -- 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." The trouble is that some companies are more cavalier than others when it comes to sweeping awkward expenses away from the headline figures.

Today I'm looking at British American Tobacco (LSE: BATS.L  ) (NYSE: BTI  ) 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:

 

2007

2008

2009

2010

2011

Profit Before Unusual Items

3,175

3,805

4,382

4,992

5,397

Restructuring Charges

(173)

(160)

(304)

(311)

(190)

Goodwill Impairment

-

-

-

(249)

(273)

Asset Writedowns

-

-

-

(44)

-

Gain on Sales of Assets and Investments

56

141

2

-

-

All figures in millions of pounds.

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 2007 and 2011, my stats tell me British American Tobacco reported cumulative profits before exceptional items and tax of 21.8 billion pounds. However, aggregate exceptional costs came to 1.5 billion pounds -- equivalent to 7% of cumulative underlying profits.

British American Tobacco's profit and loss account looks pretty clean from this cursory inspection, and one-off items have done little to affect its impressive record of profit increases. However, it's worth noting that it has incurred restructuring costs in each of its last five financial years. This is something investors will want to keep an eye on in future periods, even though the costs to date have been relatively modest.

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Stuart 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.


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