A Very Quick Look at GlaxoSmithKline's Earnings


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." Trouble is, some companies are more cavalier than others when it comes to sweeping awkward expenses away from the headline figures.

Today, I'm looking at GlaxoSmithKline (ISE: GSK.L) (NYS: GSK) 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 Dec. 31






Profit before unusual items (in millions of pounds)






Restructuring charges (in millions of pounds)






Gain on sales of assets and investments






Asset writedowns (in millions of pounds)






Legal settlements (in millions of 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 2007 and 2011, my stats tell me GlaxoSmithKline reported cumulative profits before exceptional items and tax of 40.5 billion pounds. However, aggregate exceptional costs came to 7.9 billion pounds -- equivalent to a significant 20% of cumulative "underlying" profits.

Restructuring charges are often stripped out by companies as exceptional items, but you need to watch out for companies where restructuring seems to be a constant state of affairs. In GlaxoSmithKline's case, it's taken significant charges in each of the last five years, as the pharmaceutical industry continues to slim itself down in the absence of new blockbuster drugs.

Legal bills have also had a big impact on GlaxoSmithKline's bottom line in the last five years. They totaled more than 5 billion pounds. Although the major hit came in 2010, these charges also seem to be an ever-present cost of business.

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 exclusive Motley Fool report -- which can be downloaded free today -- 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 GlaxoSmithKline's Earnings originally appeared on Fool.com.

Stuart Watson does not hold shares of any company 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.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.