UPDATE: GE says the First Call consensus excluded the impact of the preferred dividend and that, if the dividend were included, the consensus would have been $0.36. In other words, GE met expectations. We don’t know how analysts defend excluding the dividend from operating earnings, but it appears we unfairly characterised the results. Our apologies!
EARLIER: GE met the consensus EPS estimate of $0.37… as long as you exclude the dividend on GE’s newly issued preferred stock, which you would never do unless you were trying to find a way to say that the company met expectations.
GE was clear about how it “earned” the $0.37, so we’re not suggesting there was any subterfuge here. But the real EPS number, the one analysts should have been forecasting, was $0.36–at the bottom of the range GE forecasted in early December. (The company did not mention then that this forecast excluded the preferred dividend, and, if we had to guess, we’d guess it did not).
Why shouldn’t you exclude the preferred dividend from EPS? Because the preferred dividend reduces the cash flow available to common shareholders (the “per share” in earnings per share) to the tune of $75 million per quarter. These dividends are not optional. There are not an “extraordinary item.” They are not a non-cash charge. They are a cash financing expense, one that is no different from the interest payments GE makes on its debt.
So what is the $0.37 per share that made everyone conclude that GE had met analysts’ expectations? A form of the fabled “earnings before expenses” that companies turn to when they can’t make the number the old fashioned way.
(To be fair to GE, it’s possible that analysts chose to exclude the preferred dividends from their estimates. If so, they should revisit this decision. It makes no sense).
See Also: GE Reports In-Line Quarter