Why So Many Earnings Calls Are So Screwed Up

Earnings release and conference calls: the recurring drill that is, in many ways, the organising principle for IR activity. It is the nucleus around which the rest of the IR calendar orbits, from conference appearances and roadshows to personal time off. Just as importantly, the earnings conference call also sets the script, at least for the next quarter, on what happened and what to expect. 

So the most recent NIRI survey of IROs on conference call practices provides an interesting snapshot of this most basic of IR functions. While there’s the usual overview of logistics and demographics, preparation and follow-up, a deep dive into the numbers reveals some interesting and surprising results about the state of IR, post the market meltdown of 2008-2009.

To state the obvious, the vast majority (98 per cent) of companies hold conference calls (517 out of 530 respondents). But while IR is clearly at the centre of the disclosure process at most companies – and the survey reflects that – a not insignificant minority of companies still seem to cut IR out. 

Granted, a survey is a blunt instrument. Without actually interviewing respondents, it can’t take into account each one’s interpretation of the question, corporate culture, CEO/CFO styles, individual practices or the particular circumstances at any one company. Even so, the NIRI survey reveals that CEOs and CFOs are more heavily involved (95 per cent and 91 per cent, respectively) than IROs in reviewing scripts in preparation for the call. 

While the C-suite involvement is not surprising, given that members are almost universally participants in the call, what is troubling is that IR, in some not insignificant instances, seems cut out of the process. Seven per cent of IROs are NOT involved in preparing conference call scripts and 15 per cent of IROs are not reviewing scripts.

There are three possible interpretations here:  

1. Those 76 IROs who are not reviewers are the authors of the script and interpreted the question as not describing their role in the process.

2. Review was delegated to other IR staff (possible in large and mega-cap companies, unlikely in ‘IR-lite’ small or mid-cap companies).

3. Most troubling of all, some IROs are not in the loop on reviewing the script. The survey itself and NIRI’s discussion are moot on these points but hopefully future surveys will tease some of those factors out.

But there’s no mistaking the answers to a question about rehearsals before the conference call. In an era where plaintiffs’ attorneys, the SEC and the business press pore over transcripts of earnings calls, an astounding 129 companies (25 per cent) reported they do not rehearse the call at all, and an equally astonishing 122 companies (24 per cent) report they do not prepare scripted answers to any questions. Presumably there is a lot of overlap in the responses to those two questions. 

At a time when businesses lament the lack of certainty and visibility in their outlook, there seems an unhealthy dose of ‘winging it’ still out there in the most important disclosure activity a public company engages in.