Is Your Earnings Release Stuck In The Past?

Jun 2016

Near the top of the list of regrets we hear from IR officers and corporate executives is that they don’t do more with their company’s quarterly earnings release.  For some companies, the format hasn’t changed in years.  Some read like a 10-Q MD&A (“…revenues declined due to lower sales of our products...”).  Others contain multiple-paragraph CEO quotes that read like a three-month diary entry.  And many do a poor job of putting results in the context of your story.

Unfortunately, the regrets are usually expressed at earnings time, when it’s too late to make changes.  So, ahead of Q2 earnings season we thought we’d provide some tips for those who want to blow the dust off their tired old release.

Why is now a good time to rethink the old earnings release?  Because times have changed:

  • People aren’t going to one document to get all their info anymore. They can type in a ticker in their browser or data analytics app and have everything they need in seconds.  The release still plays a critical role but its time in the spotlight is now much more limited (more on that below).
  • Attention spans are shorter – analysts and investors often have to process earnings results from several companies they follow on the same day. To make it even tougher, many of them are on the road, squinting at the numbers on their phones while trying to answer numerous texts asking for their take.
  • Numbers are stale almost as soon as they’re printed – after that it’s all about the context and the outlook. So the earnings call and analyst call-backs are where the real action is.  Live discussions enable the Street to judge the CEO by her own words and body language, often leading to insights that go well beyond the release.

All that said, earnings releases remain a vital part of the external reporting process, especially in those crucial minutes between market open/close and the earnings call.  So how can you make yours more effective?

  1. Start with the process. How does the sausage get made in your company?  The people closest to constructing and telling your company’s story to the Street should be playing a key role in determining the look, feel and content of the release.  This may sound obvious, but in many companies the release is constructed separately from the earnings call script, often by the SEC reporting team.  While this approach supports disclosure consistency, it often comes at the expense of providing context around the results for Wall Street readers.  Other companies have the opposite problem, involving too many cooks and ultimately leading to the “TMI release”, including recaps of every announcement put out during the preceding quarter, long explanations of the results and those endless CEO quotes.  In both cases, the remedy is to consolidate responsibility among a small group, with the people closest to the daily dialogue with investors playing a central role.
  2. Next comes the messaging. The intent of this post is to advocate for shorter, easier-to-use earnings releases.  But that doesn’t mean just printing a bunch of dry bullets and tables, devoid of any sense of your story.  Adherence to SEC disclosure conventions is paramount of course, but so is consistency:  a good earnings release aligns with the story you plan to tell on your earnings call.  Most companies spend weeks agonizing over their conference call remarks, but few think about those comments in the context of what the release looks like.  More should.
  3. Make your release more user friendly. The most valuable piece of mindshare that an earnings release commands is the time between when it’s issued and when investors get on the earnings call. For many companies, that’s as little as 30 minutes.  How are you going to use that time to shape your story?  Some companies are beginning to experiment with infographic-style releases.  Others use summary tables up front to showcase the key financial and (sometimes) operating metrics investors care most about.  This is a good practice, though take care not to ruin the effect by adding lengthy paragraphs after the table that repeat the same metrics comparisons in MD&A like language.  If helpful, go instead with a few sentences that add context to the numbers in the table, without repeating them verbatim.  Also, if your investors want to see narrative around segment results, quarterly business highlights, etc., section these off with headers that either or encourage or redirect the reader toward the info they care about.
  4. Move up the quote, and shorten it. Yes, we know it’s hard not to write that long quote, but as accurate and well-written as it may be, no one is going to remember it.  So write what you want to say, then force yourself to put it into 2-3 (not run-on) sentences.  Now, move the quote up to just below the lede.  Investors usually aren’t too concerned with quotes, but journalists are – they want the CEO’s take and most don’t want to have to dig for it.  Why is this important?  Because for all the work you do to emphasize your rising Adjusted EBITDA over your stock compensation expense-challenged net income comparison, Bloomberg and Reuters are skipping straight to the bottom line of the income statement (the one with the word “GAAP” next to it), and that’s their headline.  But a strong, short, well-placed quote will get their attention.  One other quote tip – be judicious with the frothy adjectives.  Investors are quick to spot over-spinning and they’re equally quick to discount it.
  5. Oy, enough with all the headlines. A supporting headline or two can be a great way to call out something important about your results.  No supporting headlines can be a missed opportunity to drive home a message.  But too many of them – which we see too often – is a press release buzz killer.  Some will argue that using a half dozen headlines to summarize primary messages makes the release more user friendly and solves for #2 above.  But too often this approach yields a release that reports out the key metrics in order while sacrificing the clean takeaway you want the Street to have.

The above suggestions are not comprehensive but should serve as a quick guide to a top-down review of your earnings release, from process to content to design.  With technology and other factors changing how the Street receives and processes your news, there’s no better time to take a fresh look at how well you’re serving them at earnings time.

Originally Published on LinkedIn