FactSet Data Difference - VNO REIT SalesQ

Research
1

In another thread Jerome posted his work comparing Sales numbers between the two data providers. I noticed when looking at the list it seemed like there were quite a few Financial companies (which we know FactSet treats differently) and REITs. One of the REITs that stuck out in my own analysis was VNO. If we look at the Trailing 24 months of Sales between the two engines we get the following results

Legacy = $3810

FactSet = $7675

So FactSet shows approximately 2x the Revenue of Compustat. Who is correct? If I look at the 10Qs and 10Ks for VNO I get a Trailing 24 months of Sales of $3454. Clearly, Compustat is much closer to this number, so where does the discrepancy come from? Digging in a little deeper to the VNO Financial Statements it seems clear that FactSet is including the following line items as top-line Revenue

Net gain on transfer to Fifth Avenue and Times Square JV
Net gains on disposition of wholly owned and partially owned assets

This appears to account for the difference in the Revenue values between the two data providers. It is pretty clear from the Financial Statements that VNO does not consider these asset sales to be Revenue, nor given all I know of accounting should they. The question is why does FactSet do this, and is there anyway that P123 can correct for this? It is reasonable to assume that FactSet is doing similar things with the other REIT’s which is why a disproportionate number of them seemed to show up on Jerome’s list. Note that because these asset sales are “lumpy” they will completely screw up Revenue Growth calculations, which is why VNO was flagged in my analysis.

Hope someone finds this useful.

Cheers,

Daniel

2

Good post.

To add more meat to the bone and look outside the FS and REIT sector (I agree they seem to be the majority of discrepancies in Sales) → let’s look at Boeing from my list also with a different Sales PQ

SalesPQ (Compustat) = 20,530
SalesPQ (Factset) = 17,911

PQ = Quarter ended Dec 31 2019

Looking at the Annual report page 117, note 24 → Total revenue $17,911 for Qtr ending 31 Dec 2019 (https://tinyurl.com/ybr6jh88)

but … there is a footnote:

“During the fourth quarter of 2019, we recorded an additional reduction to revenue of $2,619 for estimated potential concessions and other considerations to customers and associated delivery delays related to the 737 MAX grounding. During the fourth quarter of 2019, we recorded a divestiture gain of $395 and a tax benefit of $371 related to the settlement of state tax audits spanning 15 tax years. Additionally, we recorded an impairment of $293 as a result of our decision to retire the Aviall brand and trade name, and reach-forward losses on Commercial Crew of $410 and on KC-46A Tanker of $108”

So Compustat has added back up $2,619 + $17,911 = $20,530 but not Factset
I note that Compustat does not add back the divestiture gain (which would make like-for-like sales not comparable), nor the tax benefit (not a real sale), etc…

I argue that Compustat is right. The factual sales achieved were $20,530. If Boeing chooses to make provisions it should be further down the P&L.

Overall, I more and more get the distinct feeling that Compustat is more right than Factset. In particular they seem to try to do their best to enforce comparability of the data over time i.e. Qtr after Qtr. Factset data is likely to jump around every time there is a slightly “out of the ordinary” item.

I would argue that this does not bode well for our systematic algo-based purpose

Jerome

3

Yuval, P123,

Are you able to find and post the rules of the game for Factset? Compustat?

E.g. how do they decide what goes into Sales and what does not?

Surely they must have a rule-based approach when they put financial data in the data set. It cannot be dependent on which analyst types it in or if he / she has a good day and therefore decides to read the footnotes?

Thank you

Jerome

4

Yes, Jerome, of course FactSet has a rules-based approach. I am pasting below what they write about sales. I can access this description for any item you’d like. Please keep in mind that for FactSet, REITs are “other financial companies.”

FF_SALES
Net Sales or Revenue
Page: D10907

Library: FactSet Fundamentals

Category: Financial Services/Income Statement

Units: Millions

Annual, Interim and Preliminary Items - All Industries

For Commercial companies:

Represents sales of goods and services, earned from the company’s core and recurring operations, reduced by cash and trade discounts, allowance for sales return and pass-through taxes, such as sales and excise taxes.

It includes:

Franchise sales included in revenues
Consulting fees included in revenues
Royalty income included in revenues
Contracts-in-progress income
Commissions earned (not gross billings) for advertising companies

It excludes:

Deductions from amortization of intangibles (for companies dealing with long-term service contracts)
Gains and/or losses from hedging derivatives
Gains and/or losses from asset disposals
Gains from reversals of restructuring and other non-recurring items
Equity in earnings
Dividend and interest income
Non-operating income
Interest income
Interest capitalized
Equity in earnings of unconsolidated subsidiaries
Rental income
Dividend income
Foreign exchange adjustment
Gain on debt retired
Sale of land or natural resources
Sale of plant and equipment
Sale of investment
Security transactions
Income on reserve fund securities when shown separately
Operating differential subsidies for shipping companies
Net mutual aid assistance for airlines companies
General and Service Taxes
Value-Added taxes
Excise taxes
Windfall Profit Taxes
Government grants and subsidies

For Banks, Insurance and Other Financial companies:

This item represents the total operating revenue of the company.

For Banks, it includes:

Interest and fees on loans
Interest on Federal Funds
Interest on Bank Deposits
Interest on State, County and Municipalities Funds
Interest on U.S. Government and Federal Agencies Securities
Federal Funds sold and securities purchased under resale agreements
Lease Financing
Net leasing revenue
Income from Trading Accounts
Foreign Exchange Income
Investment Securities gains/losses
Service Charges on Deposits
Other Service Fees
Trust Income
Commissions and Fees

For Insurance companies, it includes:

Premiums Earned
Investment income (if the company reports this item net of expenses then the net amount is shown after excluding interest expense)
Other operating income
Gains/Losses on sale of securities (pretax)

For Other Financial companies, it includes:

Investment income
Interest income
Income from trading accounts
Trust income
Commission and fees
Rental Income
Securities purchased under resale agreements
Investment Banking income
Principal Transactions
5

  1. Thank you Yuval. Any chance we can access this whole manual somewhere (so that you do not have to paste stuff everytime)

  2. Can you post what it excludes for “Banks” and “other FS” (I want to check Capital One)

  3. Can you pls post OpIncAftDepr? (I am still trying to get the GreenBlatt Ranker to work the way it has been working for years with Compustat)

  4. In the case of Boeing and with the inclusion / exclusion rules as listed, I cannot understand why they did not add back “$2,619 for estimated potential concessions and other considerations to customers and associated delivery delays related to the 737 MAX grounding” - exactly like Compustat did.
    Any thought anyone?

Thank you,

Jerome

6

Thanks for posting the details Yuval. Since REITs are being treated as financials by FactSet (which seems appropriate for Mortgage REITs not so much for Equity REITs), I assume the rule to exclude Gains and/or losses from asset disposals is not being applied? However, in the rules for Financial companies I don’t see anything which would imply to me that what we are seeing for VNO is appropriate.

Do you guys have any thoughts on the issue?

7

I wish there were.

I’ve posted everything they have about that particular function (sales).

Yes. We use IsNA(EBIT_OPER, OPER_INC) so I’m posting both. EBIT_OPER tends to be NA for banks and insurance companies.
FF_EBIT_OPER
EBIT (Operating Income)
Page: D12149

Library: FactSet Fundamentals

Category: Income Statement

Units: Millions

Annual, Interim and Preliminary Items - Commercial and Other Financial Companies

Returns EBIT (Operating Income) for the period and date(s) requested in local currency by default.

This is calculated as:

Net Sales or Revenue (FF_SALES)

minus Cost of Goods Sold (FF_COGS)
minus Selling, General & Administrative Expenses (FF_SGA)
minus Other Operating Expenses (FF_OPER_EXP_OTH)

If Net Sales or Revenue (FF_SALES), Cost of Goods Sold (FF_COGS), Selling, General & Administrative Expenses (FF_SGA), or Other Operating Expenses (FF_OPER_EXP_OTH) are not available, Operating Income (FF_OPER_INC) will be substituted.

Note Given the nature of data items included in this calculation, this formula will only return data for companies classified as either Commercial or Other Financial. To determine whether a company is classified as commercial or other financial company by the FactSet Fundamentals database, use the formula: General Industry Classification (FF_GEN_IND). If this formula returns a 01, 02, or 03, then it is classified as a commercial company while if the formula returns a 06, then it is classified as an other financial company.
Results are rounded to five decimal places to alleviate floating-point rounding error. This forces small non-zero numbers to round to zero and may result in certain formula ratios returning N/A.

FF_OPER_INC
Operating Income
Page: D10814

Library: FactSet Fundamentals

Category: Income Statement

Units: Millions

Annual, Interim and Preliminary Items - All Industries

Represents the ordinary profit from the company’s core operations, resulting from the application of the company’s business model and strategies but before the payments to owners of capital, returns on investments, and payments of income taxes.