“The Number is the Number”…Most of the Time

I had dinner recently with an old friend—he was chief financial officer of a company I followed years ago, and recently turned up as CFO of another company I keep an eye on.

We talked mostly of how his work has changed since Sarbanes-Oxley made daily life so miserable for some public company executives that they’ve taken their companies private.

Not my friend.

He loves being in a public company, and, like a lot of other executives I’ve talked to in the last couple years, says that while the Sarbox regulations went too far and were way too expensive to implement, the regimentation was something public companies needed to do eventually anyway: “We just never made the time.”

Furthermore, as a CFO he likes the fact that there’s less uncertainty about the numbers, fewer shades of gray: everything has a rule behind it, and every quarter the numbers fall out where they fall out, unlike the old days, when auditors gave companies more leeway with reserves, receivables and all manner of book-entries. As he put it while looking down at an imaginary P&L next to his dinner plate: “The number is the number, and that’s it.” Which is why I found it so remarkable that IBM could report a bottom-line number last night that, at $1.21 per share, was exactly the same as the consensus earnings estimate from Wall Street’s Finest: $1.21 per share.

Not a penny more, not a penny less.

You’d think that a company that generated $22 billion in revenue from all manner of product lines, in all manner of countries, with all manner of foreign exchange translation issues to deal with—not to mention amortization costs, stock-based compensation costs, restructuring costs and retiree benefit costs—might, in this Sarbox-restrictive environment in which “the number is the number,” have a hard time hitting the so-called consensus estimate to the penny.

But IBM hit the number on the screws.

And not even what management described on the conference call as a “fall off in the third month of the quarter” in IBM’s U.S. enterprise business, which is the source of this morning’s downgrades by a couple of Wall Street’s Finest, stopped IBM from hitting the number.

Just like the old days!

Jeff Matthews I Am Not Making This Up

© 2007 Jeff Matthews

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.