The Best Practices for Large Cap Financial Reporting

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We recently conducted a case study examining the best practices of quarterly financial reporting communications on twelve large cap, med tech companies, including Medtronic, Abbott Laboratories, Boston Scientific and Zimmer Biomet, to name a few. Throughout the course of our study, we identified several important best practices.

Earnings Advisory
The most common way companies choose to announce financial reporting dates is through an earnings advisory press release. This press release is a straightforward announcement of when and how a company plans to release financial results. The announcement is generally made a month to two weeks prior to the earnings date, allowing current and potential investors to plan around the event. The standard procedure for publicly-traded companies is a press release followed by a conference call led by the company’s management team. The advisory release lays out this plan, including the logistics on timing and where to find the information. They also include conference call numbers and the location of the webcast and press release. All this information can be found in the investor relations section of a company’s website.

Earnings Press Release
Companies create earnings press releases as a means for the investment community to quickly digest a company’s financial results. The release summarizes and condenses the content found in the otherwise long and comprehensive SEC filings 10-Q and 10-K.

  • Earnings releases are distributed before earnings conference calls. Some companies announce earnings before the stock market opens and others after the stock market closes. In med tech, the large cap diversified companies tend to report before the market opens, allowing for management to speak with a larger group of covering analysts throughout the remainder of the day. The small cap companies, who generally have fewer covering analysts, are more likely to release earnings after the market closes.
  • Companies generally keep the format of earnings press releases consistent to make finding key information easier for investors. Revenue and earnings per share numbers are highlighted in the beginning, as these are considered two of the most important metrics.The company’s CEO usually provides a quote summarizing the quarter and highlighting recent accomplishments. If a company gives guidance or forecasts certain business metrics, this will be discussed and either updated or reiterated in a paragraph of the release. The release will include details for the upcoming conference call, as well as a paragraph about the company and a looking-forward statement. Lastly, unique to earnings press releases, financial tables are included. At a minimum, you will find an income statement and a balance sheet.

Supplemental Materials
Depending on the business, a company might communicate additional information beyond what is included in their earnings press release. Supplemental information can include earnings presentation slides, sales details by region or product categories, Non-GAAP reconciliations and other infographics.

Earnings Call and Webcast
A conference call will follow the earnings press release. The calls are also broadcast or webcast over the internet via the company’s investor relations website. The call is typically led by the company’s management, including the CEO and CFO. Scripted commentary expands on topics covered in the press release and more. Common themes include revenue drivers or headwinds, product approvals or launches, data from clinical trials and salesforce strategy or changes. The CFO will typically deliver detailed financial metrics covering the income statement line by line. After the prepared remarks, management fields questions from investment bank analysts covering the stock.

We observed the following trends regarding questions asked:

  1. Of 48 calls investigated, management fielded questions from an average of 7.3 analysts per call.
  2. Analysts are typically permitted one question and one follow up. This ensures as many analysts as possible get the chance to ask their question and prevents prolonged discussion.
  3. Typically, an analyst from a bulge bracket bank asks the first question.
  4. The CEO and CFO field the questions and sometimes they are joined by division heads to assist on specific questions.

Communicating financial results is one of the most important components of a company’s investor relations program. These activities are heavily scrutinized by investors and potential investors as evidenced by the stock price movements after earnings releases. Clear and concise reporting is the goal for management teams, and these best practices will help them create credibility and confidence within the investment community.

Philip Taylor, Analyst

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