IR 101: The Value of a Properly Executed Earnings Release
October 14, 2014
Much more than the quarterly reporting chore that so many companies view it as, an earnings release done right is a vital tool that offers companies with an opportunity to manage expectations, influence analysis and guide investors (and the media, and everyone else) to the conversations you want to have
At its most basic, the quarterly earnings release is simply a report from you to your shareholders disclosing what you took in, what you put out, and what you netted — a report card, if you will: A+ for an excellent top-line; D for soaring expenses; C for lackluster bottom-line results.
Yes, your top-line was excellent. That’s great. But the eye is drawn to the bottom-line, and the bottom-line was far from excellent — not exactly terrible, but not good, either. That’s on the surface, the quick assessment. If you simply release your earnings figures, the surface is all that anyone will see. But the real story of your results is far more complex, and there is no reason for your earnings to be a basic regurgitation of the numbers. If you do it right, your (properly executed) quarterly earnings release is an opportunity to get the real story across and open channels of communication between you and your investors, analysts, shareholders, the media, even your employees.
Let’s expand on the example: What really happened there? Well, for the past three years your performance has been steady, with minor increases at the top, steady margins, minor increases at the bottom-line. This year: You re-branded, re-organized and launched an exciting new product (or three). Then you embarked on the first phase of a long-term, multi-faceted marketing campaign designed to raise customer awareness of the “new you” and bring them to your door. The result? Your top-line growth was excellent, up three-fold over the same quarter of last year. Of course, all of these changes and campaigns require capital, thus the dramatic but short-term increase in expenses, which naturally had an impact on the bottom line. In the medium to long-term, however, you are absolutely confident that these moves are going to pay off; they’re already contributing to the top-line and they’ll be reflected in the margins and the bottom-line soon enough.
And if you lead with that analysis, rather than just reporting the figures, chances are good that today’s bottom line will be compared to the potential bottom line of a year from now, not last year, and your share values may even raise.
Hypothetical? Of course. But not very.
We’ve written before on this blog of the importance of communication. That may not surprise you, since you know we’re a communications firm. But, truly, the value of communication is something everyone at Inktank feels believes in and feels passionately about, and good communication is something we’d like to see more of. Any move a company makes, from rebranding and reorganizing, to expansion, to fleshing out the C-Suite — none of that is secret. It’s happening in public; and yes, your competition is likely to try and counter your moves. But you don’t care about them (in this instance), you care about communicating clearly and concisely with the people who will finance these moves about what you’re doing and why.
I learned all of this in principle while in business school, but as I’ve participated in the quarterly reporting cycle over and over with companies who run the gamut of perhaps inclined to over-disclosure to those who are very stingy with information, it has become clear that those professors really did know what they were talking about.
The truth is that the very best earnings releases do more than say what happened, they say why it happened and hint at what comes next. Whether the news is good (successful expansion) or bad (operations shut down because a market tanked), the key is to present the facts and provide in-depth, candid analysis; to go deeper than the surface, to give an explanation.
We all love a good story, and one backed up with solid figures is bound to draw an audience. While you have the podium, why not shape what the audience hears, where the audience’s attention is drawn, and what the audience takes away from the show?
Communication is powerful: good communication brings good results or at least mitigates the fallout from disasters, inadequate communication… well, that brings something else.