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The Enduring Power of the Earnings Report

How important are quarterly earnings releases and conference calls in an era of abundant information and nanosecond trading?  Very important, according to a recent study co-authored by Stanford professor Maureen McNichols. The study found that even in today’s environment, the earnings report and conference call not only have the ability to move markets (“during the three days surrounding quarterly reports, share prices are four times as likely to have big moves as they typically do”) but also can serve as indicators of how stocks will continue to move in the months ahead. 

Jeff Sommer of The New York Times also recently stated in an article that earnings reports can still move markets and traditional metrics still matter, especially when investors are looking for a silver lining in an otherwise gloomy economy.   

And, in Baruch Lev’s book, Winning Investors Over, he talks about the importance of conference calls and shares proof that they do matter.  Interestingly, his research revealed that earnings and book values (net assets) account for no more than 10% of stock price changes that occur around the time financial reports are released. Therefore, what you say on the call, how you say it, and the relevancy of the information shared does have an important impact on investor reaction and trading.   

Thus, the earnings release and conference call remain a powerful tool for managing perceptions of investors and other stakeholders.  Here are a few ideas to help you get more out of this tool:

Provide supplemental financial information – Are you spending hours on follow-up calls with analysts who are all asking for the same data points needed for their models? If so, you may want to provide additional financial data within your earnings release or as a supplemental disclosure on your website.  For example, Bank of America posts a document called Supplemental Information along with its quarterly earnings information.   This could help you not only improve the quality of your callback discussions, but also mitigate the disclosure risk during these conversations. 

Keep your conference call focused on strategy – Make sure your conference call speakers are delivering meaningful commentary that resonates with listeners and are not just reading what’s already in your earnings release.   Focus on what drove your quarterly results and where the company is headed. Prepare to discuss what you are seeing across the industry as well as internally and the impact these variables have on your strategy and performance.  And keep it impactful but brief (usually, 15-20 minutes of prepared remarks is enough) as you want to leave time for a productive Q&A session.  Posting commentary from your CFO ahead of your call – as NVIDIA does – could help you get some of the nitty-gritty details out into the market and free up time for more strategic messaging during the prepared remarks.

Reinforce key messages via mobile, social channels and traditional media – Consider using additional communications channels to reinforce key messages with your investor audience and the media.  For example, “live tweeting” your earnings call is a great opportunity to highlight key messages (and it’s also an easy way to begin integrating social media into your investor relations program). Twitter continues to be an even more important medium for both the buy side and sell side as it has been integrated into Bloomberg terminals and some trading platforms for several years.  Of course, as you review your earnings communication process, don’t forget about traditional media.  Be sure to set aside time for key reporters following your earnings announcement.  This remains an effective way to clarify and reinforce your message, as investors still look to traditional media as a primary source of information.

You may even want to consider using video to reinforce your messages  These videos don’t need to be heavily produced sessions (like what we’ve seen from Yahoo) and could be recorded in a more casual setting (a la Bill Gates) or even on a smart phone.  ARC Resources does an excellent job using video in Myron’s Minute – a series of short videos produced each quarter where the company’s president and CEO discusses ARC's performance, upcoming plans and factors affecting the industry.  As a plus, these short videos can easily be shared via social media channels. 

In these ways, earnings releases and conference calls can be put to use as much more than just routine quarterly reports of financial results.  Unleashing the full power of the earnings report not only sheds greater light on current financial performance, it also helps investors gain a more complete understanding of the company’s strategies and prospects for the future.

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