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Chapter 8. Earnings Tricks and Games: Ma... > Red Flag 1: Companies That Always Me...

Red Flag 1: Companies That Always Meet or Beat Earnings Expectations

Diversified electronics and engineering group Emerson, whose products include fans, garbage disposals, and power and climate control systems for buildings, suffered its first earnings setback in 44 years in 2001 due to a sharp decline in profits from its electronics and telecommunications business, and restructuring costs. The first decline in earnings for such a long period was worth noting in itself, but the way that Emerson announced that the downturn was going to hit home was even more interesting and sheds a lot of light on the leeway companies think they have to tinker with the final numbers delivered to the public. “After careful consideration, our management team made a proactive decision to not continue Emerson’s record 43 consecutive years of increased earnings per share,” Emerson’s CEO David Farr said in a statement. “We could have pared back restructuring and other investments, or taken other operating actions as we have done in the past, to continue the record.”


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