The Business Press Maven only cried once at the movies, and that was when he dropped his tub of popcorn. But come earnings season, the tears always flow. The trigger is the sad fact that, in reporting earnings, the media reports what expectations were, but rarely bothers to mention when those expectation were last tweaked.
Why is this important?
You really didn't ask that, did you?
Hear me out: there is no portion of the relationship between Wall Street and the media that is more dysfunctional and of less service to investors than how earnings reports are reported. I'll try to stave off the waterworks long enough to explain that it can all be solved by simply giving a time context to the expectations that the company beats, matches or falls short of.
Let's start at the beginning, when a company first gives public guidance for future results. Considering how kooky it all can become, who better to put it in initial perspective than Groucho Marx, who once said: "Those are my principles. If you don't like them, I've got others."
And so it goes with numbers guidance. These are our earnings estimates. If you don't like them, we've got others.
A company throws out an original number for a future quarter, but that's just the opening salvo. As time passes and business swoons or surges, that original number, it turns out, is made of elastic. Sometimes it is ratcheted up, sometimes down. The shifts in numbers are sometimes subtle and come for totally legitimate reasons. (Business, by nature, has unforeseen variables.) Other times it looks like a numerical free association, and the tweaks are done to deliver bad news the way it goes down the easiest: slowly.
Then the earnings report comes and, right there in the first or second paragraph and quite possibly the headline, we read about how the quarter looks ... compared to expectations. The same expectations that have floated in the wind.
This error and the resulting confusion are compounded when the stock's initial reaction to the feckless expectation is mentioned prominently, giving validity to the knee-jerk reaction that is a stock movement based on incomplete information.
Let's look at two
stories. One is a four sentence job that gets an official Business Press Maven nod of approval. The other is a full-length tour de no force that gets an official Business Press Maven back of the hand.
, we were told after their earnings report this week, posted first-quarter results that met Wall Street's expectations, but investors were disappointed that the company did not raise its 2006 outlook. A couple of talking heads were quoted, whining for that bump on the yearly guess, but nowhere in the article does it say precisely when consensus on these numbers was reached. Was it after last quarter? Or 15 minutes before the earnings release? Readers and, more importantly, potential investors could be left confused as to whether the market was really concerned that no upgrade had been given to the 2006 numbers. What was the legitimacy of the estimates?
In only four sentences on
The New York Times
made that abundantly clear: "The New York Times warned investors last month that first-quarter earnings would be below analysts' average estimates at the time of 25 cents a share."
A long piece, poorly done. A short piece, perfectly done.
To Be Sure
On a slightly different subject, it is highly appropriate that when it comes to these two earnings stories this week, on the one hand,
was good. And on the other hand,
was not. Reuters.com has a tag line that seems the lovechild of Fox News and "Dragnet": "No spin. No agenda. Just the facts. As they happen." And while no agenda is appropriate, no spin can also be taken to mean no thought. Take some facts and walk them down the middle and you tell me how that is ever going to guide an investor.
Look at this worthless little gem about a new drink
is coming out with, one that laces coffee with cola. The Business Press Maven has three young children and a perpetual fatigue headache, so he immediately saw this as the latest and greatest in new addictions. What did
think? Here's the headline: "Coca-Cola Blak could pop or fizz in U.S. debut."
Well, blow me over with insight. A new product that could, conceivably, succeed or fail. And no matter what its fate, rest assured: The product can be reliably woven into a corny word play.
Considering that it's tax time and The Business Press Maven pointed you
last week to an article that buried a telling line about how unequipped some television brass are to adjust to a competitive field (the head of
noted that his sales force would, heretofore, be asked to go out and get business instead of waiting for it to come to them), I want to point you to a good, little piece, written with an appropriate nod and wink. In a revolutionary new policy, spurred by a Government Accountability Office study, the Pentagon will, heretofore, only give out bonuses to defense contractors that do at least a satisfactory job. "Some payments to defense contractors were, well, indefensible,"
The Washington Post
Anyhow, happy tax day. More importantly: have a happy and healthy Passover or Easter.
A journalist with a background on Wall Street, Marek Fuchs has written the County Lines column for The New York Times for the past five years. He also contributes regular breaking news and feature stories to many of the paper's other sections, including Metro, National and Sports. Fuchs was the editor-in-chief of Fertilemind.net, a financial website twice named "Best of the Web" by Forbes Magazine. He was also a stockbroker with Shearson Lehman Brothers in Manhattan and a money manager. He is currently writing a chapter for a book coming out in early 2007 on a really embarrassing subject. He lives in a loud house with three children.