In the first week of the New Year, before the US markets even opened for the first trading session, a wellknown company tendered its entry for the bone-headed investor relations tactic of the year.
With January 1 falling on a Monday and the US markets remaining closed on January 2 in honor of the recently deceased former president Gerald Ford, traders and portfolio managers were given an extra day to recover from their New Year’s revels. The four-day break was the longest closure for the markets since the horrible days following September 11.
On the morning of January 2, as Wall Streeters either slept late or drove their kids back to school, Lennar Corp, the home builder, thought it was a good time to make a significant material announcement. At 6.01 am EST, Lennar zapped out a release over the wires. First, the good news. The company had decided to sell a stake in a joint venture, a move ‘expected to generate profits for financial statement purposes of Corp shareholders! Then the bad news: the release went on to explain how, given the sagging housing market, Lennar would a) have to write off assets ‘within a range of $400 mn to $500 mn during the fourth quarter of 2006’ and b) report a loss for its fourth fiscal quarter.
Any investor should have known the positive headline on the off-day release was a red herring. Nobody announces a positive earnings surprise on a Friday after the market closes, or lets news of a boffo product launch dribble out during a three-day weekend. When a company is proud of an accomplishment, it clears its throat, pounds the table and releases the news when everybody is listening – right before trading opens, for example.
An even more dramatic move is to drop the good news in the middle of a trading day, which forces the exchange to suspend trading, and causes CNBC anchors to wonder just how many points the stock will gain when trading resumes. Conversely, companies continue to believe that releasing bad news during a three-day weekend will lead investors to ignore it. Sure, Lennar’s sneaky move gave investors more time to process the bad news before trading opened – 27.5 hours, to be exact. But the extra time didn’t temper their anger. On Wednesday, January 3, the first trading day of the year, Lennar stumbled out of the gate, falling 3.5 percent. If a tree falls in the forest and nobody is there to hear it, it’s debatable as to whether it makes a sound. But if a company releases bad earnings at 11 pm on a Friday, or on the Sunday of President’s Day weekend, you can hear the crash from very far away indeed.
