Credibility and transparency win more friends than spin
Second quarter earnings: when the financial year gets serious. You’re halfway through the year, and markets will be eager to check how you’re performing, and wondering whether their estimates and forecasts for the full year are appropriate.
If you’re lucky enough to be at a company where you always beat estimates and every conference call is a love-in, you can skip the rest of this blog. But if you live in the real world of Investor Relations, you’ve had to think about messaging a quarter where numbers were grim, but the long-term story is intact.
Here are some hard-won insights into how to handle this situation:
Consider your guidance: As any skeptical CFO will tell you, guidance is a double-edged sword, and you’ll be punished for a miss. But in a one-off weak quarter, guidance can be a lifeline. If you can affirm your guidance in a down quarter it shows real confidence, and markets will be inclined to trust you. But remember you’ve just increased the stakes for your guidance: if you miss after affirming, expect a market backlash.
Find a new operating metric: There are plenty of management and Investor Relations teams who will say on their quarterly conference call, “The numbers are weak, but the business is strong!” And sometimes it’s true. To back up your case, take a look at operating metrics to see if there’s a number that shows performance better than GAAP financials – a metric you’re willing to disclose consistently.
Be open: The temptation to put a positive spin on results is always there. You feel upbeat on your business, and don’t want to encourage a focus on short-term financials. But if you come clean and admit you’re disappointed in results, investors have more reason to believe you’re taking their concerns seriously. Sometimes, positive thinking will backfire via misinterpretation as a lack of recognition for investor concerns.
Whatever your situation in the coming earnings season, it’s important to remember your stock reaction will reflect the composition of your investor base. Building a base of long-term, informed investors is a never-ending task, but it will pay off when earnings come in below expectations.