Samsung posts record preliminary profit as shares fall at the open

Samsung Electronics shares opened nearly 5% lower on Tuesday after the company reported preliminary second-quarter operating profit of 89.4 trillion won, or about $58.4 billion. CNBC reported that the figure was a record preliminary profit for the South Korean technology group.

The April-to-June operating profit compared with 57.2 trillion won in the previous quarter and 4.7 trillion won in the same period a year earlier, according to the company’s preliminary figures. Revenue for the quarter was 171 trillion won, up from 133.9 trillion won in the prior three-month period.

Preliminary earnings releases give investors an early view of a company’s performance before full financial statements are published. Operating profit measures profit from core business activities before items such as financing costs and tax, and is closely watched because it indicates how much earnings power remains after the company’s operating expenses are deducted.

The share price reaction showed that a strong headline profit figure did not prevent selling pressure at the market open. The report did not provide a detailed breakdown by business unit, and Samsung’s full results would typically give investors more information on the drivers behind revenue, margins and costs.

Bonus agreement affects costs

Analysts said the preliminary results reflect deductions for nonrecurring expenses tied to employee bonus provisions after recent labor negotiations. Earlier this year, Samsung agreed to remove a cap that had limited bonuses to 1,000% of base salary and to set aside 10.5% of operating profit for bonuses.

That agreement followed a weeks-long union protest seeking a larger share of the company’s earnings. Bonus provisions reduce reported operating profit because companies book expected compensation obligations as expenses when they arise, rather than waiting until cash payments are made.

The shift in Samsung’s bonus framework links employee payouts more directly to profitability. Under such a structure, a higher operating profit base can increase the amount earmarked for staff compensation, while the resulting provision also weighs on reported profit in the period in which it is recognized.

The company’s second-quarter revenue and profit figures mark a sharp sequential improvement from the first quarter, based on Samsung’s preliminary disclosure. The year-on-year comparison is wider, with operating profit rising from 4.7 trillion won in the second quarter of the prior year to 89.4 trillion won in the latest period.

Samsung did not provide further detail in the preliminary figures cited on Tuesday. Investors will look to the company’s full earnings release for segment-level performance and management commentary on costs, demand and capital spending.

This story draws on original reporting from CNBC.