How (and Why) to Read a Company's News Release - TheStreet

Thanks to the Internet, you now have easy access to company financial statements, news from multiple sources and analyst reports straight from Wall Street. You can also get your hands on some baffling, badly written news releases.

These announcements at times may be filled with useless gibberish that is meant to confuse rather than inform. Nonetheless, you can't ignore the news releases issued by the companies in which you own stock. These notices often contain important information about a company's earnings, management changes or customer growth.

What is contained within a news release often has a big impact on a stock, for better or for worse. Wall Street pays close attention when releases come down the pike, particularly quarterly earnings announcements. You also have easy access to releases distributed via

PR Newswire and

Business Wire on sites like

Yahoo! Finance.

To make use of these releases, you'll need to learn the tricks that companies use, from overwhelming you with news about absolutely nothing to crafting indecipherable jargon that no one can understand.

Heavy Volume

When issuing news releases, some companies obviously ignore the maxim, "Less is more." Instead, they try to distract you with a constant flood of announcements that often say nothing.

"Sometimes, management believes a stock will react favorably to a volume of news releases and they cater to that mentality," says Bill Nygren, co-manager of the

(OAKMX) - Get Report

Oakmark fund and the

(OAKLX) - Get Report

Oakmark Select fund.

Technology companies, in particular, are often guilty of pumping out announcement after announcement.

FreeMarkets

(FMKT)

, which operates business-to-business auctions, posted 11 releases to its Web site during August. That works out to more than two a week.

MP3.com

(MPPP)

, the embattled online music site, issued 22 news releases during the same month, covering subjects from the important to the ridiculous. (Important: The release about the company settling a copyright infringement suit with

Sony Music Entertainment

. Ridiculous: The one announcing the site's tribute to

Survivor

contestant Gervase after he was kicked off the island.)

With some companies, it's not the number of news releases that's irksome. It's their lack of substance.

Scanning the news-release wires, you'll find releases that hype meaningless trade-show appearances and promotional tours.

Last November

Track Data

(TRAC)

, the financial-data provider online-trading firm, actually put out an announcement titled "Track Data Announces No Press Release Today," which went on to recap several earlier releases. Although amusing, the announcement still highlights the games that some companies will play to attract attention.

Of course, the news that really mattered came this spring when it was revealed that Track Data's CEO incurred millions of dollars in trading losses. That announcement then raised concerns that the company would be sold since the CEO's borrowings were secured by many of his shares in the company.

"You don't find a lot of value added in press releases. But too many can be a bad thing, particularly when a company is not doing so well," says Doug MacKay, co-manager of the

(ROGSX) - Get Report

Red Oak Technology fund. "They should spend more time on their business."

Blah-Blah-Blah

You can plainly see that many news releases are written in indecipherable language that doesn't tell you anything about what a company does. Companies don't make products. They provide solutions.

Last month, 135 releases hit

Business Wire

that used the descriptive phrase "end-to-end solution."

Using that kind of gibberish, you could describe a trash can as a comprehensive, adaptable waste-containment device.

Plenty of people use

America Online

(AOL)

to access the Internet.

But did you know that "through its strategic alliance with

Sun Microsystems

, the company develops and offers easy-to-deploy, end-to-end and enterprise solutions for companies operating in the Net Economy?" That's the line you'll find in AOL news releases.

Need a translation?

AOL has a joint venture with Sun to make software used in e-commerce, or selling stuff over the Internet.

To figure out what some of these companies really do, you have to go to an independent source like

Hoover's to find descriptions written in English. This vast business-information site can help you interpret those releases.

Burying the Important Stuff

Reading many releases can be pure drudgery. But sometimes combing through every last word is incredibly important.

Some companies bury important information in the body of their news releases. An announcement's headline will tell you one thing. You'll discover something wholly different if you read the entire release. Generally, they don't bury the good stuff.

In late July,

Nokia

(NOK) - Get Report

announced its second-quarter results in a release titled, "Nokia in April - June: Preparing for third generation with outstanding results."

But buried at the bottom of this rather cheery release, you would have found a sliver of stock-crushing information.

"We anticipate Nokia's earnings per share in the third quarter to be at least equal to the level achieved in the third quarter of 1999. However, due to the timing of the new product introductions as well as seasonality, they are projected to be lower than in the second quarter of this year," reads a quote from Chairman and CEO Jorma Ollila.

The company was saying that it wouldn't meet expectations during the third quarter, and the stock fell 25% that day.

Oakmark's Nygren believes it's worth going back to read a company's prior earnings releases to see how the language changes from quarter to quarter.

In one quarter, management might say they expect the year to "substantially exceed" last year. Then in the following quarter's release, they are telling you this year will merely "exceed" last year.

"A reduction is implied in the way management worded the release," says Nygren.

If you miss that subtlety, you might be in for a nasty surprise.

Dear Dagen aims to provide general fund information. Under no circumstances does the information in this column represent a recommendation to buy or sell funds or other securities.