Earnings Press Release: 10 Best Ways To Really Ruin It - Part 4
Do not get me wrong: accountants do play an important role in the earnings press release process.
However, the quality and the impact of your results announcement will largely depend on one single factor: the familiarity of the owner of this process with analysts’ and investors’ way of thinking, their modelling methodology and their main areas of concern regarding your company.
In other words, the announcement needs to be driven by those with first-hand knowledge of their questions, past and potential, and of their modelling techniques.
The Investor Relations team is uniquely positioned to drive the project.
Financial statements reflect how effectively the leadership team has executed the company’s strategy, how it has been able to make the best of endogenous resources at its disposal and how it has dealt with exogenous factors over which it has no control.
If your announcement fails to link the pluses and minuses of the accounting-based financials with your strategic ambitions, you will not be able to get the credit you deserve for your achievements. Your valuation will suffer.
According to the World Federation of Exchanges, there are over 40,000 listed companies in the world. This means, albeit theoretically, that if you are a listed company, you are competing for capital against at least 39,999 companies.
If your think that you just need to have a great set of numbers and your valuation will take care of itself, then think again.
Investors have little time to figure out what your numbers are saying. In this context, the quality of Investor Relations is going to be a key competitive differentiating factor, a concept I developed 20 years ago when I founded FINEO Investor Relations Advisors.
And it starts with your earnings announcement. Don’t let it go to waste.
A good recipe for success is to dedicate one third of the earnings announcement process to perform a thorough number crunching exercise the way analysts and investors do… before they do it. This may lead you to go beyond what is required in terms of disclosure and therefore beyond what is available in your financial statements: providing ad hoc ratios, adding more details on the operating performance, providing more insights into the non-financial measures, for instance.
In our Investor Relations Coaching sessions, I often insist on the fact that complying with disclosure requirements is a beginning, not an end in itself.
If, by disclosing more (and by that, I mean potentially more than before, more than your peers), you increase your chances to pop up on the radar screens of the right investors, then you should carefully consider this opportunity.
This phase will be even more constructive if you plug your own company’s numbers in the models of the sell-side analysts that cover you. By so doing, you can even attempt at “guesstimating” the impact of your actual results, of your guidance on the change in their ratings or target price… I owe this tip to Catherine Buan, award-winning Investor Relations professional with whom I have had the pleasure of working a few years ago. Her “Bull” and “Bear” scenarios were extremely useful when it came to discussing guidance options with management.
The remaining two thirds you will spend crafting the announcement, weighing words and choosing the right tone, one that is aligned with your corporate culture and your other communications collaterals.
Robust writing skills and productive ideation sessions with your colleagues in the corporate communications, Human Resources and Legal departments are required, especially when it comes to selecting titles and key messages.
Whenever the draft is quite advanced, one of our clients likes to ask the project team: “What is the title we would love to see in tomorrow’s Financial Times?”. With some practice, you can get closer to your desired goal. The objective is to produce an earnings announcement that will speak to all stakeholder groups and target audiences, including the media, not just analysts and investors.
Today, producing an earnings press release implies that you also discuss your company’s performance against Environment, Social and Governance metrics in some form.
While the trend is changing, very few companies are as bold as Arcelor Mittal, the world’s leading integrated steel and mining company, and have the first highlight in every quarterly results announcement dedicated to “Health and safety performance”.
In its “ESG Investing: Practices, Progress and Challenges” report published in 2020, the OECD cited research by Goldman Sachs highlighting “a 75% increase in the number of companies in the S&P 500 discussing key Environmental and Social terms from 2010 to 2017 on their earnings calls, with a peak of 41% from 2016 to 2017.”
A growing number of jurisdictions and stock market authorities worldwide now require fund managers and corporate issuers to report on these metrics, with a level of granularity that seems to know no limit.
The global trend towards responsible investing is here to stay.
More fatal mistakes (and how to avoid them) tomorrow…. Stay tuned!