The Usual SuspectsWhirlpool fired back late Wednesday, after receiving questions for this article, reaffirming earnings guidance and blaming the fall in its share price on market rumors "questioning the integrity of our 2001 earnings." CEO David Whitwam thundered, "These rumors are completely without merit. We stand behind the integrity of our financial reporting." However, Whitwam may be fighting a tough battle in a market draped in skepticism. Following the accounting scandals of recent months, pro forma earnings have come to be seen as a real curse. Countless companies offer specially doctored income statements that say little about the ongoing strength of their business. This habit, which became prolific in the '90s bubble, has drawn the attention and ire of regulators and investors. Whirlpool's fourth-quarter earnings illustrate the pitfalls of pro forma earnings. If we strip out the noise and the clutter in the quarter, earnings turn out to be more than 40% lower than the $1.58 in per-share profits Whirlpool actually reported. Investors, who judging by the stock's rise seemed until Wednesday not to have grasped what's going on, sent the stock down $7.04 or 9.7%, to close at $65.50.
By the NumbersBelow is a table showing a list of items that helped boost fourth-quarter profits, ranked in order of magnitude. Together, they add up to 68 cents a share, which is equivalent to 43% of the total.
|The Pro Forma Rinse |
Assorted items that boosted Whirlpool's fourth-quarter pro forma earnings
|Amount (millions)**||Amount (per share)*|
|Items excluded from cost of goods sold||$18||0.18|
|Brazilian tax credit||13||0.13|
|Decline in credit reserve||10||0.10|
|Items excluded from SG&A expense||6||0.06|
|Sequential decline in tax rate||4||0.06|
|Pro forma earnings||-||1.58|
|Special items as a percent of pro forma earnings||--||43%|
|Source: Detox |
*Assumes 32% tax rate and a 69 million share count.