Have I mentioned yet how very much I dislike pro forma earnings? (Hmm. Turns out I have.)
Letting companies set their own standards for how their numbers are featured seems to me an invitation to Enron-like trouble. Other investors, however, don't seem to mind so much -- as evidenced by the reaction to Thursday's earnings report from Symantec (NASDAQ:SYMC).
From a pure GAAP perspective, things didn't look so hot last quarter. Sales grew a respectable 10.6% year over year, but net profits slid 5.3%, and profits per diluted share flatlined at $0.10. (On that last point, the company's ongoing stock buybacks have reduced diluted shares outstanding by roughly 13% over the past year, shoring up per-share profit numbers.)
But that's not how Symantec sees things. Arguing that a "series of acquisitions, the impact of SFAS 123(R) and other corporate events" have obscured its true profitability with GAAP accounting clutter, management prefers that investors focus on its pro forma, "non-GAAP" numbers. Conveniently, they show a 21% rise to $0.29 per share in pro forma profits, and a 16% rise in deferred revenue.
Moreover, the company declines to include cash flow statements in its earnings releases. So if you agree with Symantec that the GAAP story isn't the whole story, you're really left with only management's say-so that its pro forma depiction of the quarter is the best one. We won't be able to calculate free cash flow until the missing cash flow statement arrives with the 10-Q filing.
Granted, Symantec isn't the only company to disrespect its investors in this manner. Running down the list of notable competitors I mentioned in our Foolish Forecast earlier this week, I see that neither McAfee (NYSE:MFE) nor Microsoft (NASDAQ:MFE) bothered to include cash flow statements in their earnings releases. (Actually, while Microsoft includes no financial statements, it does file its 10-Q simultaneously with its earnings release.) Meanwhile, CA (NYSE:CA) and EMC (NYSE:EMC) don't seem to have a problem with releasing their cash flow numbers in a timely fashion.
I think the horse is dead
Really? Well just to be sure, let me give it one final kick: Symantec CEO John Thompson calls these results "a good start to our fiscal year." Investors seem to agree. But when the GAAP numbers say one thing, but management says something different, this Fool would much prefer to see some cold, hard facts -- in the form of a cash flow statement -- before agreeing to take the CEO's say-so.
Further indubitable Foolishness:
- Foolish Forecast: Symantec Sings
- Symantec's 2-Billion-Buck Buyback
- Symantec Soothing Shaken Shareholders
Symantech and Microsoft are Motley Fool Inside Value picks. Discover more of the market's best bargains with a free 30-day trial subscription.
Fool contributor Rich Smith does not own shares of any company named above.
