Stock Profits: Getting to the Core—New Fundamentals for a New Age

1. Fairly regular sales record which, upon analysis, shows strong

growth in international tobacco and food sales.

2. Exceptionally consistent gross margin.

3. Very strong growth in operating income (see above).

With all of these results, we would expect—under traditional

fundamental assumptions—to see very consistent net return. In fact,

pre-core-earnings adjustments were 13.8%, 10.6%, and 11.6% for

the years 2002, 2001, and 2000. However, when we made our core

earnings adjustments, the net return fell to 10.5%, 4.2%, and 4.4%.

The cause of this shift—including a doubling of core net return in

the latest year—was due to a combination of factors. The ...