The Q4 earnings season is over and the numbers are in the bag. The GAAP numbers that is, not the non-GAAP garbage that lately everyone from Warren Buffett, to Factset, even to the SEC (and of course this site since 2013) has been bashing.
We wonder if they will continue bashing the GAAP numbers once they learn what they are, because as the charts below show, the earnings carnage on a real, unadjusted is simply unprecedented. Case in point: Q4 GAAP EPS just dropped even more from our previous estimate, and using IBES data, it is now down from 21 to 19.7, the lowest quarterly print since Q1 2010 when GAAP earnings were just 19.4 (and when the S&P was roughly half where it is now).
What about on an LTM and full year basis? As the chart below shows, the growing trailing 12 month divergence in the past few quarters between GAAP and non-GAAP has grown to proportions not seen since the financial crisis. What one can say with absolute certainty is that unless oil rebounds, and does so fast, all those “one-time, non-recurring” pro forma add-backs which have kept the non-GAAP EPS of the S&P500 flat while GAAP has plunged, will very soon be revised sharply lower.
Which brings us to the full year snapshot: what if Buffett, and Factset, and the SEC (and of course this website) are right and GAAP is the proper way of looking at earnings? Then we have a big problem, because instead of the 118.0 in 2015 non-GAAP S&P earnings, which translate into a P/E multiple of 17.3x as of yesterday’s 2037 market close, the real, GAAP EPS of just 88.9 for the full year 2015 means the P/E multiple is now a gargantuan 22.9x!
It also means that GAAP earnings for the broader market are at a level last seen in 2010 when, as noted earlier, the S&P 500 was trading at about half where it closed today.
