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Google blames R.R. Donnelley for early earnings release

FILE - In this Wednesday Oct. 17 2012 file phopeople attend workshop 'New York Get Your Business Online' Google offices

FILE - In this Wednesday, Oct. 17, 2012, file photo, people attend a workshop, "New York Get Your Business Online," at Google offices in New York. Google Inc.'s stock plunged suddenly on Thursday, Oct. 18, 2012, after a contractor prematurely released the search company's third-quarter earnings report. (AP Photo/Mark Lennihan, File)

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Updated: November 20, 2012 10:55AM



Wall Street and Google got a big surprise Thursday afternoon when Google Inc.’s third-quarter earnings were mistakenly released, and Google blamed Chicago-based printing contractor R.R. Donnelley & Sons Co.

To make matters worse, the earnings results were far short of analyst estimates. When the news came out, early, the reaction was so negative, the stock fell 9 percent, setting off halt in trading.

Google was supposed to report earnings after the market closed. Google blamed Donnelley for filing the statement with the Securities and Exchange Commission more than three hours ahead of schedule.

“We are fully engaged in an investigation to determine how this event took place and are pursuing our first obligation, which is to serve our valued customer,” R.R. Donnelley said in a statement.

In the regulatory filing, Google said it earned $2.18 billion, or $6.53 per share, during the three months ending in September. That compared with net income of $2.73 billion, or $8.33 per share, last year.

The earnings would have been $9.03 per share, if not for Google’s accounting costs for employee stock compensation and restructuring charges related to the acquisition of Motorola Mobility. Analysts polled by FactSet were expecting $10.63 per share, on average.

The incident will likely raises concerns about Donnelley’s reputation and exposes the company to potential lawsuits, according to Morningstar Inc. analyst Liang Feng, who follows Donnelley.

“It is not clear that Google suffered from any tangible damages related to this incident,” he wrote. “...We do not currently believe that Donnelley will be responsible for legal liabilities. Since Google’s market capitalization fell more than $20 billion or more than 10 times Donnelley’s market capitalization, the potential ramifications are huge, but we think it will be difficult to prove direct tangible damages.”

He added Donnelley did not misreport any information, no insider trading was involved since the statement was widely released to all and Google would have reported earnings regardless after hours.

The “incident is clearly embarrassing to the company and could reflect system or procedural issues,” he wrote in a research note. “However, we are not overly worried that clients will abandon Donnelley’s services for competitors.”

Donnelley is one of the few remaining players in the industry.

Google Inc.’s stock plunged $68.19, or 9 percent, to $687.30 before trading was halted to give investors a chance to digest the results. Google blamed Donnelley for filing the company’s quarterly statement with the Securities and Exchange Commission more than three hours ahead of schedule. Google’s report had been slated for release after the close of regular trading Thursday.

After a nearly three-hour break, investors decided the results weren’t quite as bad as they initially appeared, and the shares recovered slightly.

Even so, the stock wound up dropping $60.49, or 8 percent, to close at $695.

The sell-off of Google’s stock reflects a reversal of the optimistic sentiment that had propelled Google’s stock to a new all-time high earlier this year. The stock had surged 27 percent in the three months before Thursday’s unwelcome surprise.

Motorola Mobility, which Google acquired for $12.4 billion in May, played a major role in the third-quarter letdown. The device maker suffered an operating loss of $527 million, more than tripling from the same time last year when it was still an independent company.

Google is trying to improve Motorola Mobility’s performance by laying off about 20 percent of its workforce — about 4,000 employees — and closing one-third of its 90 plants and office. Those cost-cutting resulted in $349 million in charges during the quarter.

The strong dollar may also have contributed to Google’s miss. The company said that if foreign exchange rates had been stable, its revenue would have been $136 million higher.

Contributing: Francine Knowles and Associated Press



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