David McCann, CFO.com | US
November 17, 2009

This Just In

I find myself wondering about something the day after I posted my initial comments on this article: Time Warner announces today that it is spinning off AOL.

I remember there being quite a bit of press over the size of that deal, but my thought was how many analysts out there touted that as a good buy? And how many analysts out there will tout the spin-off as a good idea? There's a revelation for you: jettison a money-losing operation. Once again, it's the investor who takes it on the chin (although it is ultimately their fault) after listening to a bunch of investment banker, senior management, and analyst noise. But I guess if Time Warner had reconciled GAAP to non-GAAP, or broken out AOL revenue (which it would have been if it was considered a business segment, but I don't want to make any heads spin with technical accounting mumbo-jumbo), analyst would have cried foul from the beginning.

No, your job is to tell you-know-what from shinola in the first place and factor it in your DCF analysis when valuing the company. Maybe we should make that a disclosure requirement too: management now has to perform it's own DCF to determine the value of the company. Another great spoon-feeding exercise at the quarterly call.

Posted by Benjamin Algeo | Nov 19, 2009 10:16 AM ET

Analysts' Conundrum: Look for real value or next quarteręs spread

A premium is likely to flow to the stock of companies that can balance the risk of more guidance with the value of more visibility. This, of course, assumes ?all else equal.?
However, as long as management is rewarded more for short term gain than long term value the trend towards less reporting on key operational metrics in quarterly earnings calls is likely to continue. Although, the lack of adherence to Regulation G (which is not a high occurrence in larger companies from my experience) in the reconciliation between GAAP and non-GAAP numbers is something that should not be tolerated in the context of quarterly filings and earnings calls. There is too much risk for the investor without understanding the two sets of numbers and how they tie out.
The counter intuitive view, as expressed by other comments on this article, is that a competitive advantage is available to those companies that have a high degree of confidence in their strategic direction and can demonstrate that confidence in break outs of M&A activity and other metrics that can provide ?strategic guidance? as well as earnings guidance. This should not create more work for the financial reporting department, simply a different presentation.

aghosn@t1mas.com

Posted by Anthony Ghosn | Nov 19, 2009 9:39 AM ET

Let's Go Still Further

Very much agree with Ms. Bellini. Turn the focus of discussions to what drove the business overall in the most recent reporting period, how this squares with management's longer-term thinking, and what is the outlook over the next year, in broad terms. Are any new forces at play? Are we on-target in the context of the next 3-5 years? The better managements are quite at home with this approach. And vice versa. Over time, reconciling "pre-mistakes" earnings to GAAP will improve credibility and command respect. Please do not chain yourself to some explicit expectations simply to please those who mostly don't even own shares, expectations that sooner or later will be widely missed. To close: accounting - and its sister, reporting - are all about resource allocation and resource financing. In the near term, mistakes will be made. Pay attention to their messages; do not hide them. The future will be the smoother for managements and owners that continually listen and respond. And we haven't even touched upon management development, manufacturing processes, dividend policy, and more.

Posted by Robert Boyd | Nov 18, 2009 2:24 PM ET

Spoon-feeding Analysts

This was perhaps the whiniest column I've ever read here. As a CPA who works preparing actual company financial results in accordance with the ever-growing population of standards and disclosure requirements, I find the analyst's comments incredulous.

Try this: do your own work! Maybe company results would improve if so much of management's time wasn't dedicated to placating and selling some story to the analysts. Results are published every three months for Pete's sake! You're telling me that as an analyst, if you truly took the time to understand a company's business, studied it's historical results (which, btw, includes management's own take on those results - see the MD&A section), evaluated the true opportunities and risks facing the company, evaluated management's capabilities to take advantage of those opportunities and avoid or reduce the risks, that you still aren't capable of coming up with an appropriate valuation unless you have a reconciliation of GAAP to non-GAAP measures? Spare me.

But alas, I guess as long as we have a system where management is showered with stock options; where investment banks swim around like sharks trying to persuade management to acquire this company or that, divest this business, or spin-off that one, at considerable expense to the company; all while employing analysts to explain it all to investors, things just won't change.

I can deal with it not changing; just don't whine about it.

Posted by Benjamin Algeo | Nov 18, 2009 12:47 PM ET