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!
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