The third-quarter earnings season is starting to wind down, giving us at MarketWatch time to look back and remind ourselves of something — just how annoying it was.
That’s because of the many things companies do to make our jobs more difficult, from failing to issue a press release with a clear table of key metrics up top, to leaving out important numbers in the first release, to including far too many nonstandard, or non-GAAP, numbers. GAAP, or generally accepted accounting principles, is a standard U.S. companies are obliged to follow.
More and more companies opt to disclose their earnings in a shareholder letter, or a PDF, with lots of images and tables that are, for our purposes as journalists if they don’t include comparisons from the year-earlier period, almost entirely useless.
As reporters are the first to process these numbers, and earnings come in fast and heavy at the peak of each quarterly earnings season, we’re hoping this article can persuade companies to spare a thought for us. As we’ve outlined before, you don’t want angry, or underinformed, people writing up your numbers.
So please stop doing all of the following.
From the archive: Here’s how investors are duped each earnings season
Where’s the press release?
Putting numbers into a shareholder letter is a big no-no. Those companies that do that — Netflix
has done it for years — seem to have no understanding of how tricky it is to access the information with many people clicking away and websites slowing due to the increased traffic.
Most such letters are pure PR and rarely contain even a noteworthy comment on the company’s financial performance from an executive. And adding charts with nothing but percentage changes and no hard numbers is just going to make reporters crazier. We still have to dig those out. Sometimes we have to visit three different locations, from an investor-relations page to a regulatory filing to some other disclosure posted somewhere else, just to find the first numbers the investing public relies on us to report.
This earnings season, for example, 3M Co.
and Coca-Cola Co.
— both components of the Dow Jones Industrial Average
— released earnings reports that failed to identify net profit. Yum Brands Inc.’s
first release had no net income and no revenue number, so we had to ask for them.
The Coca-Cola release highlighted operating profit, forcing us to search elsewhere for net numbers. 3M highlighted operating profit margin. In both cases, the first release to hit wires had no table. Coca-Cola has not included a table with an earnings report since its results for the third quarter of 2017, and 3M hasn’t included a table since its fourth-quarter 2021 release.
A 3M spokesperson responded to our request for comment as to why a financial table of consolidated results had not been included in the press release, which ran on PR Newswire: “3M shares financial statement information on our Investor Relations website at the same time our press release is issued. A direct link to the page including the financial statement information is included in the release.”
Yum Brands said it released a table with a statement posted to its website at the same time as a press release ran on Business Wire, but we were unable to locate it at that time. A spokesperson said the 8-K filing — which we also were unable to find — was published shortly after the earnings release.
Coca-Cola did not respond to a request for comment.
Then there’s General Electric Co.
which this earnings season reverted to an old practice: including an array of non-GAAP numbers that were mixed in with GAAP numbers and, generally, made a jumbled impression.
Companies are allowed to offer non-GAAP numbers as long as they give the GAAP numbers equal prominence and offer a reconciliation of the two.
But that was not available in the GE press release, which offered a “continuing” earnings-per-share number of 8 cents and adjusted earnings per share of 82 cents.
The adjusted number “excludes insurance, non-operating benefit costs, gains (losses) on retained and sold ownership interests and other equity securities, restructuring & other charges, and other items,” according to a footnote.
The company is breaking up and splitting its power and renewable-energy business and its aerospace business into separate stand-alone companies. But that was no excuse to offer earnings that failed to include consolidated numbers or a balance-sheet update, as MarketWatch wrote at the time.
A GE representative reiterated the company’s view that non-GAAP numbers “help investors compare results from period to period more easily, as well as better evaluate the underlying performance of our businesses.”
And she noted that the company filed its 10-Q with the Securities and Exchange Commission with full financial statements ahead of its investor call, so that investors had all relevant information and context. “That’s why we no longer include them in the press release,” she said.
But the release, as the first statement received by reporters, who in turn interpret it for the investing public, sets the tone for how the numbers are received. And in the blur of a busy earnings day, many reporters lack the time to look up a regulatory filing.
“GE is back to its old habit of de-emphasizing its GAAP numbers by presenting a bundle of mixed alternative metrics. It may be because they are splitting up and not focused on the company as a whole, but it is still confusing to anyone looking for the big picture,” said Francine McKenna, an investigative journalist, educator, blogger and commentator specializing in accounting.
McKenna, a former lecturer at the University of Pennsylvania’s Wharton School, was previously a MarketWatch journalist.
Mind the GAAP
GE was not alone in presenting a surfeit of non-GAAP numbers.
Cash manager Brink’s Co.’s third-quarter earnings also included many, and the company flipped a key table in a way that could confuse investors. The accounting convention is to read a table from left to right, but the Brink’s table started with the 2022 numbers.
included an entire box of non-GAAP metrics covering operating profit, interest expense, interest and other income (or expenses), provision for income taxes, noncontrolling interests, income from continuing operations and EPS.
The numbers matter because EPS rises to $1.92 as a non-GAAP measure from 97 cents as a GAAP number. Operating margin climbs to 13.5% from 11.2%. And net income rises to $231 million from $46 million under GAAP.
Jesse Jenkins, head of investor relations at Brink’s, said the company believes non-GAAP numbers help explain the underlying business trends, but he said the company is planning to reduce how many such figures it reports after some investors said they disliked all the adjustments — so it’s not just us.
The company is moving carefully as it doesn’t want to make changes that might require it to restate past financials, he said.
“If you go back and look at prior earnings compared to now, the number is coming down,” said Jenkins, who has been in his role for a year and noted the current management team is also relatively new.
“I look forward to a day without six pages of disclosures,” he said.
As do we.
Read now: U.S. companies went right back to heavy use of nonstandard accounting metrics during the pandemic
One reason companies may provide investors with less information: the less you put in your press release, the less it costs.
A client-service representative at the press-release distributor GlobeNewswire, a Notified company, said pricing can be very different, based on how many words are in a release and whether there are tables or pictures. Costs can also vary depending on the distribution — the more people that can read the release, the more it costs a company.
All we can say to that is this: Please, don’t skimp on expense when it comes to earnings. For your shareholders, who after all are part owners of your company, quarterly earnings are a key part of their due diligence.
Put a table at the top that includes the following: net revenue or sales for this quarter with a comparison to the year-earlier quarter; net profit for this quarter with a comparison to the year-ago quarter; EPS for this quarter with a comparison to the prior year’s comparable quarter; adjusted EPS (if you calculate one) for this quarter and the year-earlier one.
If you want to highlight other metrics such as cash flow or margins, knock yourselves out. But the above numbers are the first things we — and our readers — need.
Guidance, if you provide it, should make clear whether it represents a change, in any way, from the last time guidance was offered. Don’t make us search to learn how investors and analysts were being guided before.
If you’re cutting jobs, or restating financials, or an executive is leaving, or any other market-moving news is included with earnings, please put that somewhere higher up than the very last sentence. Burying the lead will only raise questions about the motive.
If you want to include an executive quote, have it say something more substantive than, “We had a great quarter because we’re great.” Explain a trend, or sum up what drove a beat or a miss.
Give us something to work with.
Tomi Kilgore contributed to this report.