Now that the first earnings season of the millenium has begun, it's time to call for a few reporting improvements:
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No more boasting about Records. The most common and thus most meaningless item in quarterly financial releases. "AMD (NYSE: AMD) Earns a Record $189.3 Million, or $1.15 Per Share, on Record Quarterly Sales"; "Altera (Nasdaq: ALTR) Reports Record First Quarter 2000 Results"; "Rambus (Nasdaq: RMBS) Reports Record Quarterly Revenue And EPS".
All it takes for a record is a penny more than before. You're supposed to post a record every quarter, because it means you're growing. Hype about records is particularly irritating in the technology and Internet sectors, where many companies are only a few years old.
Not that a record means anything even in the case of an older firm, because companies aren't held to the past as a standard. It's how well you do against expectations that matters. Speaking of expectations...
Include consensus estimates for comparison. A few companies -- Ariba (Nasdaq: ARBA) yesterday, for example -- include First Call numbers in their news releases, but most don't. They should, because like it or not, that's one of the primary benchmarks used by Wall Street. Most individual shareholders don't have First Call accounts, and in any case, First Call doesn't publish top line forecasts for most stocks, only EPS. Which leads to...
Bottom line results up front. Companies understandably want to lead with the most positive news, which is why you get financial releases that start off like this one:
"SmartForce, the world's leading e-Learning company, (Nasdaq: SMTF), today announced financial results for its first quarter ended March 31, 2000, the Company's first full quarter of operations under its Internet business model. The Company reported fully committed contract backlog of $222 million as of March 31, 2000, the highest backlog level in the Company's history and significantly in excess of the company's plans...."
Sounds great, but as most Web companies can testify after watching their stocks plunge in the last few months, Wall Street is starting to care more about profits and losses. You might as well list them up front instead of burying EPS results deep in the release, because that's the first thing investors will look for anyway.
Are per-share earnings or losses the best way to evaluate a company? Not always, particularly in the case of young outfits focused on revenue growth and market share gains. But at least if you get EPS out of the way early, investors won't fly past the first few paragraphs as they search for that "X.XX per share" phrase. Once they have the figure in their heads, they can settle down and read everything else you have to say.
Say it naturally. Typical PR quote from a CEO:
"We are extremely pleased with this quarter's revenue growth and profit performance. Revenues were ahead of our expectations driven by accelerating growth in North America and Europe and continued new product sales strength. Our ReallyGreat widget product line, the fastest, most flexible and most cost-effective widget available today, continues to see broad acceptance in the marketplace. We continue to step up our pace to address rapidly growing customer demand for our industry leading widgets and widget applications."
If someone is reading your financial news release, they already care about your company, so forget the cliches and save the hype for product news releases. Typical financial PR statements make CEOs sound like automatons instead of a dynamic, inspiring leaders. Granted, in many cases they really are automatons, but if that's the case, then why have them say anything at all? Just paraphrase any essential information and make it easier reading for everyone.
Make it timely. In today's Internet world, your financial release should be up on your corporate website at 4:01 p.m. Eastern time, assuming you're among the majority of firms that announces quarterly results after market close. Give individuals enough time to digest the news before they tune into your conference call.
Provide a meaningful outlook. Kudos to AMD for giving us reasonably detailed goals for the second quarter:
"The company expects that unit shipments of PC processors could approach the record (ARGH) level of the first quarter. Unit shipments of AMD Athlon processors are expected to increase to 1.8 million units ... Communications Group sales are projected to grow by more than 10 percent over first-quarter levels. AMD projects that Memory Group sales will grow in the high single-digit range over the first quarter and resume double-digit growth in the third and fourth quarters of 2000. ... The company believes it will continue to grow faster than the industry, with total sales growth of more than 50 percent for the year as a whole."
Targets for each major product line, as well as overall revenue expectations. That's something investors can work with.
Too bad most companies refuse to be so accomodating. Instead, when there's an outlook given at all, it's usually something so generic as to be worthless:
"Going forward, Ariba will continue to leverage its leading position in B2B eCommerce to enable more marketplaces than any other player with best of breed technology, commerce services and the fastest time to market."
Try building a model around that one.
No one expects a company to provide detailed internal forecasts. But some general targets would be nice, e.g., revenue growth "in the high single-digit range over the first quarter." At least give everyone the kind of guidance analysts get on those "offline" talks that always take place after the formal conference call ends.
Blow out the numbers. Begging for this one, because the tech market needs all the confidence it can get. 22GO>