NEW YORK U.S. companies are once again relying on a lot of financial engineering to boost earnings, suggesting that last year's weak profit picture may have been even worse than it seemed, according to some analysts.
S&P 500 companies reported adjusted earnings - which often exclude one-time charges and taxes - for the last 12 months that were 30 percent higher than income they reported based on generally accepted accounting principles, or GAAP, analysts at Evercore ISI in New York said.
That is the biggest difference for a 12-month period since 2008, the year of the U.S. financial crisis, and the third highest since 1994
Investors have been worried about U.S. companies' weak profit performance, with earnings declining year-over-year in both the third and fourth quarters of 2015 and signaling a profit recession, Thomson Reuters data showed.
"Whenever that happens, it means earnings are getting difficult to get," Pankaj Patel, head of quantitative and small cap research at Evercore ISI, told Reuters.
Investors always pressure companies not to miss earnings estimates, and a large spread between adjusted earnings and GAAP earnings can contribute to a stock's underperformance, he said.
Sectors with the biggest differences between adjusted earnings and GAAP results are energy and materials, though healthcare also has a significant spread, the analysts said.
Earnings for energy and materials companies have been hit hard by the dramatic fall in oil and other commodity prices since mid-2014.
Year-over-year S&P 500 earnings declined for a second straight quarter in the fourth quarter, Thomson Reuters data showed.
Other analysts said financial engineering is not as much of a concern as the weak sales picture.
"I don't think there's a quality-of-earnings issue right now. To me ... the issue is generating top-line growth," said Nick Raich, founder of the Earnings Scout, an independent research firm.
Fourth-quarter S&P 500 earnings declined 2.9 percent from a year ago, while revenue fell 3.6 percent, Thomson Reuters data showed.
(Reporting by Caroline Valetkevitch; EDiting by Steve Orlofsky)