Strategist: Corporate Earnings Are 20% Lower Than Reported

Norway‘s main economic engine, the oil company Statoil, are being accused of dressing up their figures before releasing their quarterly earnings reports, so the earnings looks better than they really are.  Equity strategist Peter Hermansrud at the Norwegian brokerage firm, First Securities, says this is common practice among several listed companies.

“If you look at a wide range of publicly traded companies, the adjusted results over time has been 20 percent better than the real accounts.”

Peter Hermansrud

CEO Helge Lund, Statoil ASA

The Norwegian oil giant, Statoil, who yesterday presented the group’s second quarterly earnings report of the year,  has for the last two years submitted adjusted earnings numbers that in total is NOK 38 billion better than the real numbers. By doing this, the company’s profit seem to be 95% higher than it really is – compared to the unadjusted figures.

Several Norwegian media are reporting this story, Friday.

Analysts believe both Statoil and other companies are dressing up their reports a bit more than they should.

Looking Good, Man!

Peter Hermanrud

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In Statoil’s adjusted results,  are records of several large losses  pruned away, the Norwegian newspaper Dagens Næringsliv writes.

In Thursday’s Q2 report, presented by Statoil’s chief executive Helge Lund, Statoil reported an adjusted profit after tax of NOK 10.6 billion, while the actual figure is 3.1 billion.

Equity strategist Peter Hermanrud First Securities points out that the group may have good arguments to use adjusted figures, but says that several public companies are dressing up too much for the reports.

“If you look at a wide range of publicly traded companies, the adjusted results over time has been 20 percent better than the actual accounts, “ Hermanrud says.

Systematically Overestimates

Over the last two years, Statoil has overstated the real profits by NOK 38 billion.

This quarter, the group wrote down the revenue from the refinery at Mongstad with NOK 3 billion because of rising costs.

Hermanrud believes Statoil systematically overestimate their own exploration projects for oil and gas.

“They regularly adjust the value of both the bought oil fields and  their own discoveries.  But remember that the group has a direct costs that are equivalent to those billions.  This is money they have spent, is gone, and it never appear in the adjusted accounts,” he says.

EBBS – Earnings Before The Bad Stuff?

The PR people at Statoil have had a busy day; calling almost every main media who have reported the story, asking them to correct the non-adjusted figures, back to adjusted.

CEO Helge Lund points out that most analysts use the adjusted figures, and he denies the allegation that the numbers they use should be called EBBS –  “Earnings Before the Bad Stuff.”

“Absolutely not. All figures reported are as they are.  This is more question about how to communicate, and how we and analysts thinks is the best way to understand the company, “ he told the website DN.no earlier today.

Analyst John A. Olaisen at Carnegie says it’s changes in the currencies that provides the significant difference between the adjusted and non-adjusted account figures, and have nothing to do with the underlying business.

However, Olaisen believes the company should be criticized for the write-downs related to unsound investments.

Related by the Econotwist:

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Statoil May Buy BP Assets, Expert Says

Norway’ Oil Giant Disappoint Investors

Transparency Fading Away In China

Financial Authorities See No Point In Stress Testing Norwegian Banks

Wolfgang Münchau: A Cynically Calibrated Test To Fix The Result

Rosenberg: “Statistical Illusion Of Recovery”

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2 Comments

Filed under International Econnomic Politics, National Economic Politics

2 responses to “Strategist: Corporate Earnings Are 20% Lower Than Reported

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    We can adjust numbers to mean almost anything. What’s the truth? Something we don’t get too often.