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The Westwicke Blog is designed to deliver information and insights into the ever-changing world of investor relations and the capital markets, with a specific focus on the healthcare industry.

What to Do When an Earnings Call Goes Wrong

Posted on January 21st, 2015. Posted by

When Earnings Calls Go Wrong

Mark Twain said that the “difference between the right word and the almost-right word is the difference between lightning and a lightning bug.”

There’s a lesson in there for all of us. Say the wrong thing (or even the right thing poorly) and you’re going to underwhelm, disappoint, confuse, or even lose your listeners. And during your company’s earnings call, mistakes like that can cause a crisis.

There are plenty of ways to botch an earnings call. Disappointing analysts on your numbers often leads to difficult calls. But when management fails to understand Wall Street’s expectations to begin with, they can come into the call unprepared to deal with negative reactions and hostile questions. Another common earnings-call error is failing to clearly communicate future expectations, leading to uncertainty — and Wall Street hates uncertainty. Or you can mishandle the Q&A portion of the call, often by allowing negative voices to dominate or by failing to correct a misrepresentation of fact.

The consequences of a badly handled earnings call can be dire. Sell-side analysts can downgrade your stock; investors may dump your shares; and your stock price can tumble. And that’s not the worst of it, believe it or not. These errors will jeopardize management’s credibility and reputation, your company’s most valuable assets.

So that’s the bad news. Here’s the good. There are steps you can take to control and repair the damage.

  1. Get it right, ASAP. The time for action when a call goes bad is the day of the call. Brooding or finger-pointing will have to wait. Regroup immediately. Honestly assess what went wrong and determine the appropriate messaging consistent with your company’s internal expectations. What should you have said the first time? What did you mean to convey?
  1. Be visible. For many, the temptation to hide from analysts and investors will be strong. But that will only compound the problem. Armed with the results of step No. 1, schedule conference calls or, even better, arrange in-person meetings with all sell-side analysts and key buy-side analysts. If necessary, consider a public conference call or mini-analyst day.
  1. Own it. As part of your second presentation to analysts and investors, you must explicitly address the previous call. Avoid it and you’ll create a distraction for your audience. If you don’t address the problem squarely, your audience may get the impression that you just “don’t get it.”

Companies can and do successfully re-emerge from nasty predicaments and even crises. All of that said, while responding effectively when necessary is obviously a good thing, preventing trouble altogether is even better.

The best way to avoid a quarterly call disaster is through proper preparation. No surprise there. But how can you improve on your existing process?

  • Practice, practice, practice. Rehearse your presentation on your own and in front of colleagues capable of providing informed and constructive feedback. If what you have to say can’t withstand their scrutiny, your earnings call certainly won’t go well. To prepare for the Q&A, have your associates ask you every conceivable question. Encourage them to challenge your answers for the purpose of refinement. Ideally, you won’t receive a single question come conference-call time that you haven’t heard and responded to before. Make it your objective to walk away from the earnings call feeling that you were over-prepared.
  • Gauge external expectations. Consider a pre-quarterly call with analysts and investors to better understand what they are expecting from you and your company. The information you glean should be incorporated into your practice regimen.

No matter how skilled and knowledgeable you are, communicating with analysts and investors is challenging. The subject matter is complex, and the stakes are high. You might decide, as many executives have before you, to bring in a professional partner. In this, Westwicke can help, whether you are responding to a call gone wrong or preparing for the next call.

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