‘You’ve only got to mess up once. Be a little slow, a little late, just once. And how are you never going to be slow? Never going to be late?’. Timing is everything. The right message, delievered after it was needed is no good to anyone. But the right message delivered too early isn’t any better. Research conducted by the Harvard Business Review suggests that public companies aren’t timing their earnings calls to meet the needs of their listeners. The big thing everyone seems to have missed is the opportunity for afternoon earnings calls to be a big hit.
The HBR’s study was well thought out, and well executed. They used a 26,585 call sample representing calls of 2,113 US public companies:
Using textual analysis software, we examined call transcripts to see whether and how tone varies with time of day, along with the consequences of any differences. Prior research has shown that physical and mental fatigue cause irritability and a decline in executive function, especially right before lunch and late in the afternoon.
We used linguistic algorithms to measure positivity, negativity, and uncertainty during the Q&A. Tone grew more negative and less resolute as the morning progressed and improved slightly at midday, presumably because participants recharged at lunch. Negativity increased during the afternoon but fell off after the market’s closing bell—probably because the close reduced participants’ stress. Overall, calls originating late in the afternoon were more negative, irritable, and combative than calls made early in the morning, even after controlling for factors such as industry norms, financial distress, growth opportunities, and the news that companies were reporting.
The Review found a direct correlation between computer identified negative tone on earnings calls and market performance of the associated equities, finding an average abnormal return of -1.5% during the study period (S&P average return was 3% during the same study period).
Read the full study here: HBR.org
With website replays, Audio FAQs and earnings call podcasts becoming more popular than ever, a company’s earnings call and the tone that it carries is going to live on for the analysts who get to it when they get to it. For companies looking to drive retail investor leads, increase market liquidity and number of shareholders, differentiation from their peer group in the all-important earnings call is crucial.
The Review called their article ‘The Dangers of Late-Afternoon Earnings Calls’. On face value, it would appear that the mornings are the best slots. In fact, competing companies within sectors are known to jockey for position to get the morning calls, some even selecting call days based on available slots to avoid the dreaded, cranky afternoon analyst stepping all over their call (and the replay). Many sales and business development pros advocate for getting to must-reach contacts first thing in the morning, before the day gets to them and they don’t have the bandwidth. Indeed, that 8am – 9am slot is prime. So what’s an IRO to do if you’re trying to make your earnings call stand out? Take another look at the chart and consider this: Which is the 2nd most positive hour of the day?
It’s 4pm to 5pm EST, and it’s not even really that close. While the negative tone builds steadily throughout the day, The HBR’s positivity data isn’t linear – 9am to 10am EST shows a significant jump in negative tone, and it builds through the morning. This adds up with anecdotal experience. People around the office who want things (usually time) get around to asking for them after they’ve done their own morning organization. The to-do list builds quickly, and so does the associated stress. Things tend to have settled down by 4. Stuff has been solidly delegated to tomorrow, and the boss already left to beat traffic. There’s space to think. That may well be why the graph drops off, giving us an overlooked and sometimes neglected spot for a smooth call full of well-considered questions.
It’s also worth noting that the people we’re dealing with are market people. Trading hours demand attention – even from researchers. It stands to reason that earnings call tone would be more positive before the markets open and after they close. The participants have one less distraction. One could imagine that sharp, organized analysts appreciate calls that happen when they can pay attention to them.
An IBT piece that references the report quotes the authors as saying “Managers should consider these findings when scheduling calls…They should be aware that crankiness rises as the day wears on.” Which makes sense…until it dips again at 4pm. Think about that next time you’re vying for an 8-9am slot.
Lessons for your call
Most management teams are going to be naturally wary of doing an aftenroon earnings call since its not the norm. Few outside IR firms are likely to recommend it either, preferring to stick to the tried and true strategies that have survived until now. But even if that is the case, you do have other options. Since the data suggests that negative tone on calls is less prominent in the afternoons after 4pm we could readily sumize that analysts are in a better mood to receive IR information in the afternoons.
If that’s the case, then we probably need to think about what we’re sending them. Right now, most of us would send out our earnings release after market close and then remind people the earnings call is the next day at “X am”. If we’ve taken the time however to pre-record our earnings call introduction we could release this in the afternoon alongside the earnings release. If we’ve also taken the initiative to re-purpose the earnings release into a quarterly earnings infographic this can be released in the afternoon as well.