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 AstraZeneca (LSE: AZN.L) (NYSE: AZN) 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 |
4,569 |
7,021 |
7,649 |
8,685 |
8,077 |
|
Restructuring Charges |
(486) |
(605) |
(408) |
(770) |
(746) |
|
Asset Writedowns |
(60) |
(433) |
(257) |
(534) |
(355) |
|
Legal Settlements |
0 |
0 |
(394) |
(392) |
(3) |
Source: S&P Capital IQ. All figures in millions of pounds.
While annual figures can provide some insight into how a business has performed, I reckon that 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 AstraZeneca reported cumulative profits before exceptional items and tax of 36 billion pounds. However, aggregate exceptional costs came to 5,443 million pounds -- equivalent to a notable 15% of cumulative "underlying" profits.
Worryingly, AstraZeneca's exceptional costs have occurred throughout the five years, suggesting the firm is sensitive to restructures, reorganizations, and/or recessions. The track record also suggests the likelihood of further money being lost on "one-off" events.
Overall, I feel these earnings numbers need to be looked at closely by AstraZeneca's investors, as the headline figures do seem to be flattered by the exclusion of certain costs. Indeed, I doubt AstraZeneca's shareholders want to see 15% of their profits disappear through one-off expenses every five years!
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