A Very Quick Look at BHP Billiton's Earnings

Right now, I'm trawling through the FTSE 100 (UKX) 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 expenses away from the headline figures.

Today I'm looking at BHP Billiton  (LSE: BLT.L  ) (NYSE: BBL  ) to see if its reported earnings have been distorted significantly by exceptional, one-off, or unusual items.

Year to June 30

2008

2009

2010

2011

2012

Profit before unusual items (£m)

11,860

10,778

12,796

19,532

16,819

Restructuring charges (£m)

-

(2,218)

(199)

-

(360)

Goodwill impairment

(69)

(21)

-

-

(367)

Asset writedowns (£m)

(69)

(799)

386

(1)

(1,682)

Gains on sales of assets of investments (£m)

65

(20)

75

25

73

Insurance settlements (£m)

19

54

14

6

194

Other unusual items (£m)

-

(714)

4

(102)

-

Source: S&P Capital IQ

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 BHP Billiton reported cumulative profits before exceptional items and tax of £71.8 billion. However, aggregate exceptional costs came to £5.7 billion -- equivalent to a notable 8% of cumulative "underlying" profits.

At first glance, BHP Billiton seems to have a bewildering array of one-off charges, but on closer inspection many of the amounts are pretty minuscule in relation to the profit figure for each year. Most of these one-off items came through in 2009 and 2012, when the company faced falling commodity prices, so this is a useful reminder that mining company profits are extremely sensitive to commodity price changes.

2009 also saw a large £714 million charge which was simply described as "Other unusual items" by my data source. On examining the accounts for that year, a significant chunk of this seems to have been related to costs for the aborted bid for Rio Tinto  (LSE: RIO.L  ) (NYSE: RIO  ) .

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 exclusive Motley Fool report -- which can be downloaded free today -- reviews his favorite blue-chip shares for 2013 and beyond.

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Stuart Watson 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.


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