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Clothes and work papers are scattered over the floor. Friends are arriving in 10 minutes. The oldest trick in the book: sweep the clutter under the bed or in a desk drawer. Problem solved. Your guests see a clean room, and you can catch up without guilt and embarrassment.
But is that really a good cleaning? No. It’s just a reshuffling of the mess—one that will need to be confronted at some point.
That’s how some critics on Wall Street perceive Boeing’s new pension-conscious financial metrics, which are supplemental to its existing financial reporting information. In late January, Boeing Chief Financial Officer Greg Smith introduced the revised metrics and explained that the earnings measurements, called “core operating earning” and “core EPS (earnings per share),” are meant to remove certain non-operating pension costs to give a more accurate assessment of Boeing’s core business.
The question among skeptics is this: Do these metrics simply serve to confuse stakeholders, diverting attention away from the real problem, similar to shoving a mess under the proverbial bed?
The answer from most experts in the pension industry—consultants and institutional investing heads—is “no.” IBM and General Electric came before Boeing, with reportings that adjusted for pension liabilities. AT&T, Verizon, and Honeywell switched their pension methodology, revising their style of accounting to record gains and losses each year as opposed to recording them over a number of years. “For all of these cases, transparency is the key goal,” says one pension consultant who declined to be named. “I would rather have more information than less,” the insider says.
Many financial analysts, on the other hand, say the new metric is possibly misleading. In a note to investors, sent after Boeing’s announcement, RBC Capital Markets analyst Rob Stallard wrote: “Boeing has decided to issue a new metric called ‘core earnings per share,’ which ignores the inconveniently large pension expense…Given that most of the companies in our coverage do not report or guide to a consistent non GAAP ‘adjusted’ EPS, we think that GAAP EPS remains the best way to make fair like for like comparisons on valuation and earnings.” The consequence of Boeing’s adjustment, Stallard and other analysts say, is that it’s harder for Wall Street to make like-to-like comparisons.
Yes, Boeing’s new results might be misleading to some, who see rosy figures while overlooking the elephant in the room. But the trend is going in the right direction, CIOs such as Tim Barrett of Eastman Kodak concludes. “Transparency will eventually force everyone to come together on FASB and redo pension accounting in a way that is more consistent—getting regulators to finally address the issue,” Barrett says.
IBM, GM, and now Boeing, therefore, are simply responding to what the market wants: transparency. So hide your clothes under the bed, but tell your friends they’re there.
Note: An earlier version of the story indicated that General Motors preceded Boeing in pension liability-adjusted reporting. In fact, it was General Electric.