In the back half of 2022, many companies dazzled investors by reporting unexpectedly strong organic sales growth. However, investors must always remember that organic growth is a function of volume growth plus price increase. In many cases, all of the recently reported organic growth has come from companies increasing prices at historic paces. Volume growth, on the other hand, has vanished, yet many are still touting their growth. We examine how this is impacting Sealed Air (SEE), Conagra (CAG) and Stanley Black & Decker (SWK).

Our latest free Substack highlights two more high-profile names $IBM $XRAY that made significant accounting/presentation changes after 4Q. One changed accounting assumptions while the other shifted investors’ attention to a more flattering adjusted profit measure.

Despite numerous studies showing that the bulk of acquisitions are unsuccessful, many companies still believe they are great at it. The market often agrees at first, and then its tune changes to “I’ve come to bury Caesar, not to praise him,” as the deal’s flaws become obvious and the stock sells off.

There are some very basic rules of finance that get broken in some acquisitions. A key one is that the return on capital from the deal needs to exceed the cost of capital to pay for it. This becomes a bigger issue if interest rates rise. Many people grasp this quickly for consumer purchases. If a person can pay $1,000 per month for a house payment:

Acquisition prices for companies work the same way. When rates are low, prices rise and as rates increase, the value drops. Let’s look at some of these issues using Post Holdings (POST), and Conagra Brands (CAG) as examples of disappointing acquisitions.

$XRAY released audited and restated financial statements with November results. While the accounting problems may appear to be behind the company, we see several barriers to XRAY’s return to consistent growth which we examine below.

When examining a company’s earnings quality, it is always informative to compare its accounting policies, disclosure practices, and non-GAAP adjustments to others in the same industry. Deviations from the norm quickly become apparent. One company utilizing a more aggressive policy or adjustment is easy to spot- as is a company that doesn’t fall in line with a questionable practice that the others justify by saying “everyone does it.”

The major med tech companies lend themselves well to this type of comparison. These include Boston Scientific ($BSX), Edwards Lifesciences ($EW), Medtronic ($MDT), Stryker ($SYK), and Zimmer Biomet ($ZBH). Most of these companies make huge adjustments to their GAAP results. We will take a quick look at all five and compare how much they ask investors to ignore the amortization of acquired intangibles, restructuring costs, litigation costs, and regulatory costs. It quickly becomes apparent that one of these companies is much more conservative in its adjustments than the others.

Investors should be concerned by companies that post earnings beats but don't raise guidance. We examine how $SEE has done that all year in addition to changing key disclosures and enjoying one-time benefits set to reverse.

Colgate-Palmolive CL has posted EPS in the last several quarters that were very close to what analysts were expecting. And once again, the company would have missed had it not been for seemingly unsustainable items.

Investors beware of disclosure changes! We discuss recent changes in disclosures at Sealed Air $SEE and Sysco $SYY that we believe warrant investor attention.

Once again $IBM's 3Q22 one cent EPS beat disappears after a close look at the footnotes. We tally as much as 30 cps in non-operational benefits. Meanwhile, headwinds we warned of have materialized and should get worse.

We go over the details in our latest Peek Behind the Numbers: