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Investor Relations
Investors Are Less Interested in
Short-Term Results than You Think
They're also more interested in qualitative information, relative to
quantitative data, than is commonly assumed.
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David McCann
June
16, 2015 | CFO.com | US
Calls for companies to invest more in
long-term value
creation and pay less attention to quarterly financial
results may be
falling on deaf
ears, but it’s not because shareholders don’t want that
change in focus,
research released
today suggests.
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The New York Stock Exchange |
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Indeed, while CFOs (and companies generally) often cite maximizing
shareholder value as their chief duty, and a long-term strategic view
clearly behooves that objective, in practice a short-term mindset
prevails. And with good reason: missing quarterly forecasts doesn’t
exactly promote job security for CEOs and finance chiefs or help them
win big bonuses.
That’s too bad. Among 150 buy-side analysts and portfolio managers
surveyed by
Edelman’s
financial communications practice, the vast majority placed
a high degree of value on getting from companies certain types of
information that could allow more informed long-term investment
decisions.
For example, 91% of the respondents said it was either very or
somewhat important to get information about anticipated future
opportunities and vulnerabilities, such as product-release pipelines
and new contracts. Management’s vision for the company was important
to 87% of the participants, and future capital-expenditures
expectations were important to 84% of them.
Tellingly, 89% of those surveyed agreed with the statement, “If a
company is able to articulate a long-term strategy that meets my
investment thesis, I am willing to look past one or two quarters of
misses.”
“It’s not easy to come up with tangible tactics that encourage
companies to think on a long-term basis and not just the next quarter
or two,” says Lex Suvanto, managing director of the financial
communications team at Edelman. “But here we have data points
suggesting that investors care less about quarterly results than about
a compelling and sensible investment story.”
Additionally, although CEOs and CFOs routinely spend the majority of
time during earnings calls reciting numbers from their financials,
analysts and portfolio managers are more interested in qualitative
information. Qualitative guidance about trends in revenues, earnings,
margins, and other financial metrics was deemed important by 88% of
the survey respondents.
Meanwhile, only 41% of them agreed with the statement, “A company has
to give me quantitative guidance for me to consider the investment,”
whereas 87% agreed with, “I find little value in a CFO reciting the
income statement and would prefer a more high-level discussion of what
took place during the quarter.” And 81% agreed with, “On quarterly
earnings calls, I would prefer that management give their highlights
for the quarter and reserve the bulk of the time for Q&A.”
The survey results “should help management teams identify what they
should focus on in communications with investors,” says Suvanto. “The
truth is that for earnings calls, they often start with a template
from the prior quarter and go through an exercise of filling in the
blanks. What if they didn’t do that? Perhaps the reason investors are
more interested in the Q&A is that the script is not that
interesting.”
One more thing to note from the research: if an investor calls to
talk, take the call. Ninety-two percent of respondents said “company
responsiveness to inquiries” was important to them in evaluating a
company’s investor relations program. The same number said “phone
conversations with senior company management” were a reliable source
of information. |