Inside Oracle’s “Beat”: Improved Everything–Tax Rate, One-Timers, Buybacks— Except Profits

For one thing, the only reason the company beat EPS forecasts of $0.78 is because of Oracle’s massive buybacks, as the company bought back another $10 billion of its stock in the second quarter, following a repurchase of $10 billion in Q1. As a result, ORCL’s diluted shares outstanding decline by 466 million from 4.283 billion to 3.817 billion. Had ORCL not repurchase roughly 210MM in shares in the current quarter, its EPS would have been a 2 cent miss of 76 cents.

There’s more. Not only did Oracle benefit from the generosity of its creditors, as the company’s net debt rose to $9 billion at the end of Q2 vs a net cash position of $7 billion at the start of the fiscal year, and used the proceeds to repurchase $20 billion in stock in the first two quarters, but Oracle’s income tax provision also tumbled, from 21.7% in Q2 2017 to just 15.9% in the current quarter. As a result even though the company’s pre-tax income declined 2% to $2.774 billion, its after-tax net income actually rose by 5% to $2.333 billion.

And a little more. Looking at the company’s diluted GAAP EPS reveals a far more modest number of just $0.61. And yet, the non-GAAP EPS number is materially higher, or $0.80. Why?