Writing an effective earnings announcement is challenging enough when financial results meet expectations, and abjectly painful when management needs to explain a miss or temper its outlook. No wonder these documents come under such scrutiny: CEOs and CFOs labour over wording to capture the company’s performance; analysts and investors pore over the numbers and language seeking insight; and regulators increasingly watch for improper use of non-GAAP metrics. Since it’s essential to get it right, here are some tried, tested and true tips to delivering a great results announcement.
Don’t bury the lead. This staple of good journalism applies equally well to press releases. Analysts, investors and media have limited time during earnings season. Make it easy for them to find the information they need. Put key measures the market uses to track your performance at or near the top. Same rule applies to key messages about the quarter. Subheadings or bullets on the first page are an effective way to get the need-to-know information up high.
Provide context. Your readers are not all familiar with the nuances of your financial disclosure. Clearly communicate the meaning behind the numbers with a direct and candid quote from the CEO, CFO or both. A quote should identify the positives and the negatives. It can include comments about the company’s strategy, its outlook and its operating environment. It should be substantive, but use simple language. The tone should be pragmatic and informative. This recent example from Canadian National (TSX:CNR) president and CEO Luc Jobin on the company’s second-quarter is spot on: “CN continued to face a very challenging volume environment in the second quarter and maintained strong discipline in realigning resources to keep them in line with reduced freight demand. Service remained solid, key operating metrics advanced, and we continued to improve our safety record. An important product of our cost-management and productivity focus was a record second-quarter operating ratio of 54.5%.”
Stay consistent. Considering how little time your readers have to absorb your news, maintain a consistent press release structure. Include the same content each quarter, in the form that your audience has come to expect, whether in bullet points, paragraphs, tables or charts. Your readers will appreciate the familiarity.
Avoid data overload. Fifteen years ago, it was common for a company to furnish its earnings releases with its full MD&A and notes, in addition to its complete financial statements. But as MD&As have lengthened to accommodate disclosure requirements, this is no longer practical. Plus, more user-friendly websites (regulatory and corporate) have made it easy to access the full quarterly report online. Recognizing this shift, the Canadian Investor Relations Institute (disclosure: I sit on the CIRI board) now recommends that releases just include key highlights and explanations from the MD&A and notes to accompany its statements. Provide links and references to the filed quarterly report so that the details are easily accessible. It’s best practice to post the report on your investor relations website, along with other supplemental documents, such as a PowerPoint presentation, video or earnings call webcast and transcript.
Follow the rules. In the U.S., the Securities and Exchange Commission is criticizing issuers for taking too much liberty in earnings releases. “In too many cases, the non-GAAP information, which is meant to supplement the GAAP information, has become the key message to investors, crowding out and effectively supplanting the GAAP presentation,” SEC chair Mary Jo White said recently. She urged “audit committees to carefully oversee their company’s use of non-GAAP measures and disclosures.” The Canadian Securities Administrators has voiced similar concerns. It expects issuers to provide a reconciliation to GAAP measures in close proximity to the non-GAAP measures, to present the GAAP measures with equal or greater prominence, and to present the non-GAAP measures in a consistent manner period-to-period.
Chaya Cooperberg is chief communications officer and senior vice-president, corporate affairs, at AmTrust Financial Services. E-mail: Chaya.email@example.com.