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It's not just the recession that's taking a bite out of earnings. The entire S&P 500, as well as the 10,000-plus companies included in Standard & Poor's Compustat database, are slated for an earnings slim-down this summer, at least by S&P's calculation.

Blame a new metric known as "core operating earnings." The measure, which S&P analysts, among others, will factor into their debt and equity ratings, adjusts traditional GAAP net income by excluding such items as pension gains, gains or losses from asset sales, and goodwill write-offs, and including such items as restructuring charges and employee stock-option grant expenses.

"Popular replacements have come to be used instead of GAAP numbers," says David Blitzer, chief investment strategist at S&P. Blitzer cites operating earnings, pro forma, and what he calls "EBBS" (everything but the bad stuff) as some of the substitutes companies use.

S&P president Leo O'Neill says the measure "will help restore investor confidence in the data used to make investment decisions." While many laud the intent of the effort, few believe it's the magic number investors have been seeking. "The spirit of what they're attempting to do is commendable," says Brooktrout Inc. CFO Bob Leahy, "but it's essentially creating an S&P version of pro forma." He says that Brooktrout, a Needham, Mass.-based telecom equipment supplier, reports GAAP results only.

Other CFOs who use pro forma in their reporting are skeptical about whether "core earnings" will appeal to investors. "I believe the right approach is to put out all the information investors will be interested in and let them build their own models," says Jeff Naylor, CFO of Big Lots Inc., a $3.4 billion Columbus, Ohio, discount retailer. He doesn't include annual stock-option expense in his version of pro forma, and he says he doesn't agree with the S&P including it in its new measure.

Analysts, too, are doubtful that the new numbers will have much impact. "They're making a good theoretical case, but I'm not sure it will change a whole lot," says Jack Ciesielski, publisher of Analyst's Accounting Observer newsletter and an adviser on the S&P project. "Most of what moves Wall Street is not trailing earnings, it's forecasted earnings, and a lot of the things they're including aren't in forecasted earnings, because they're not forecastable."

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