I have been covering companies' earnings reports for 35 years, across a variety of industries and, shall we say, weirdnesses.
I have reported on companies sliding into bankruptcy, ones that were more concerned with buying and selling other concerns than with running an ongoing business, and even a Singaporean Chinese-medicine distributor that openly listed rhinoceros horn as a product in its annual report.
One thing I have learned: Generally accepted accounting principles, or GAAP, and net income matter.
GAAP is how accountants keep score across highly different industries. By agreeing to tally the figures in a consistent way, accountants provide scorecards that investors can review with confidence.
So I'm less than happy about how often publicly traded dealership groups present their earnings on an "adjusted" basis rather than on a GAAP basis.
You can bet that the numbers have been adjusted in a way that makes the company look good.
I have heard the arguments. Retailers' earnings are different, and GAAP doesn't properly portray how the business is doing. For starters, the adjusted earnings take out some real estate expenses that don't reflect the underlying business operations.
Well, sure. If I could ignore my mortgage payments, my family budget would look better, too.
As for net vs. operating income, I've heard those arguments, too. Operating income, its advocates will tell you, better shows the ongoing operations of a company without the distorting effects of one-time extraordinary items that can skew the numbers in any given quarter. And there's some truth to that.
But it's also true that I have seen companies have one-time, extraordinary losses in quarter after quarter. "Oh, you can ignore that special loss; it's just the cost of closing four plants. It won't happen again." Or: "That extraordinary item reflects asset-impairment charges." They don't say that they're going to have to close more factories in the future or that the impairment is because they overpaid for an asset that proved unprofitable and now they must dig themselves out of that hole.
It may not be an operational loss, but it most certainly reflects the status of the overall business and decisions that management -- maybe former management but this company's management nonetheless -- made.
How many times did General Motors say its extraordinary losses didn't matter ("Please, just look at EBITDA!") before its 2009 bankruptcy?
Net income is the bottom line. There's a reason why people say, "The bottom line is ...," not "the line seven items above the bottom line is ...." The bottom line matters. So does GAAP.
I'm not singling out any public dealership group over this. They all do it. But that doesn't mean I have to buy their spin.