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Inspire Confidence in Your Earnings Call

Francois Brochet has studied the difference between earnings releases that wow–and that bomb

Sweat drips, the voice quivers. Even the toughest of chief financial officers at times dreads quarterly earnings conference calls. Analysts and investors listen in online or by phone—poised with probing questions—to figure out if a company is worth boosting or fleeing. If there’s been a setback in the launch of a new wonder drug or an overseas expansion is tanking, it’s up to the CFO to inform shareholders that they’ve lost millions; their performance can save or break a company.
Don't do that
Many executives avoid addressing—and answering questions about—poor financial performance for fear of repercussions, and may bury the news in verbiage, according to Francois Brochet, an associate professor of accounting and a former analyst for Commerzbank and Allianz Asset Management. “When there’s bad news, a tendency to speak in more complex sentences using longer words leads to confusion,” he says. Confusion does not equal confidence in your company.
Do This
"Firms need to be aware that their choice of words can be revealing of their intention,” says Brochet, whose latest research paper, “Earnings Conference Calls and Information Transfers,” is in press with the Review of Accounting Studies. If you’ve had a bad quarter, come to the call prepared to address it head on and answer investors’ questions in straightforward language. Be sure to “craft it in a way that shows management is already on top of it.” But don’t get stuck on the present, Brochet adds. “When executives use words that relate to the short term—such as days and months—that tends to translate into investment and reporting decisions that also appear myopic or short-term oriented,” Brochet says. “I advise carving out a little time for long-term goals, whether you’re dealing with bad news in the short term or not.” Projecting one to two years out should do it. “That horizon is a compromise” between your audience’s need to evaluate near-term results and their need for assurance that you’re thinking ahead.