A Very Quick Look at Kingfisher's Earnings
LONDON -- Are profits at Kingfisher (ISE: 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
Profit before unusual items (million pounds)
Restructuring charges (million pounds)
Impairment of goodwill (million pounds)
Other unusual items (million pounds)
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!
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 free Motley Fool report -- which can be downloaded for a limited time only -- reviews his favorite blue chip shares for 2013 and beyond.
Are you looking to profit from this uncertain economy? "10 Steps to Making a Million in the Market" is the very latest Motley Fool guide to help Britain invest. Better. We urge you to read the report today -- it's free.
Further Motley Fool investment opportunities:
The article A Very Quick Look at Kingfisher's Earnings originally appeared on Fool.com.Maynard Paton 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.