As we move into one of the most challenging earnings seasons in memory, this will be the first time many companies will be providing an update on the impact of Covid-19 on their business and guidance.
In fact, our proprietary research finds that during first-quarter earnings calls, less than 15 percent of S&P 500 companies communicated a potential Covid-19 impact on guidance. But as of the end of Q1 close, 138 S&P 500 companies (28 percent) have announced an off-cycle update to guidance, with just over half withdrawing their quarterly and/or annual outlook.
In addition to guidance changes, institutional investors and analysts will be evaluating significant operational and supply-chain disruptions, wide-ranging Covid-19 response actions and capital-deployment reprioritization. We find that 57 S&P 500 companies have already announced a drawdown on revolvers prior to Q1 close, with a median of $825 mn, and 44 companies are suspending share buyback programs – primarily financials and consumer-related industries – and nearly 20 dividend programs.
This earnings season will bring significant complexity and executives should provide a high level of transparency, develop a simplified set of communications and instill confidence that their organization is taking decisive action to protect employees. It is important for organizations to ensure adequate liquidity, prepare for various economic scenarios, including a potential prolonged recession, and position the company to successfully and quickly ramp up when the environment changes for the better.
Leadership rises in crises like these and every management team can build credibility and capture maximum investor mindshare through effective, agile and compassionate execution and clear, transparent communication. The following are some communications best practices to keep in mind this earnings season:
- Earnings press release – As the press release is the first line of defense, quarterly financial performance should always be supported by robust messaging around strategy execution and notable developments that tell your investment story. The press release should be written in a clear, educational and easy-to-grasp format for it to convey more than just financial information
- Earnings conference call – Leverage as much time as you need to comprehensively address critical topics. Aim for around 25 minutes of prepared remarks, including a robust but efficient framing of the quarter with ample granularity to effectively control the narrative. Build scripts from a comprehensive outline that is less conversational and more informational in delivery, and which incorporates clear lead-ins and takeaways as you move from topic to topic. For example: ‘Now, let’s turn to our liquidity position…’
- Earnings presentation – Webcast the presentation and reference specific slides as you move through the prepared remarks. This will help align visual and oral communication, instead of simply providing the deck as supplemental information
- FAQ supplemental – Given the extent of questions that are likely to be asked during earnings Q&A and follow-up calls with the investment community, create an FAQ supplemental that is published with the press release and available in the quarterly earnings section of the IR website
- Tying it all together – Given the deluge of information investors will be receiving during earnings, develop and distribute an earnings communication email comprising bulleted key themes (‘takeaways from the quarter’) with PDF attachments of the aforementioned documents to all key stakeholder contacts.
With the uncertainty regarding Covid-19 and the resulting financial impact across sectors and businesses, it is critical for companies to address Covid-19 preparedness and response and to take decisive action to successfully navigate the current landscape. It is crucial for organizations to address their financial positioning, capital-deployment priorities, downturn playbooks and scenario analyses.
Rebecca Corbin is the CEO and founder of Corbin Advisors
