Tech firms mute ‘earnings noise’

Technology companies are spotlighting earnings that more closely comply with accounting rules, a turnaround from a decade ago, after Apple Inc. and its peers stopped excluding certain costs from profit, Bloomberg News reported on Feb. 14.
The industry’s average “earnings noise” score fell to 43 last quarter from 61 at the start of 2009, based on Bloomberg data showing the spread between earnings before abnormal items and net income under generally accepted accounting principles. Larger nonoperating items lead to a higher score, and the drop for technology was the most among nine sectors studied.
During the Internet bubble, technology companies earned a reputation for reporting “earnings before bad things,” said Shiva Rajgopal, professor of accounting at Emory University’s Goizueta Business School in Atlanta. Regulation G, a 2003 Securities and Exchange Commission rule, helped end those practices, he said.
“After Regulation G a lot of abuse came down,” he said. “Companies started putting fewer recurring expenses into exclusions. They started highlighting pro forma earnings less in press releases, the magnitude of exclusions declined and fewer losses have been changed into pro forma profits.”
A shift away from stock options for employee pay and the collapse of some of the worst adjusted-earnings offenders also mean that more companies are showcasing their GAAP results, Rajgopal said.