I need a discussion done for my week 5 class and a response to 2 other classmates for my financial Mangement class

JWI 530

The Mary Story

TALKING TO THE STREET – THE QUARTERLY EARNINGS CALL

TALKING TO THE STREET – THE QUARTERLY EARNINGS CALL

Mary was faced with a cash “problem” – she learned that her company had quite a bit of cash reserves, and it was up to her and her team to make some very important decisions about how to manage that cash. She learned that poor cash management - especially improper ways of dealing with excess cash in a business - can have disastrous results.

As Mary headed to work one morning the following week, her phone beeped with an urgent reminder. Andrea, the CFO, had invited her to join in on the quarterly Earnings Release call. Mary knew that the Company had quarterly financial conference calls every three months. But until now, she hadn’t been all that motivated to get involved. She recalled how she had once used a link from Investor Relations to listen in on a call earlier in the year. Frankly, Mary found it a little confusing and quite boring…

But Mary had been studying the financial reports, and was more familiar with the terminology. She was confident that from now on, these calls would make more sense to her. She understood that by participating in the call she could learn what was truly important to the CEO, Senior Leaders and key stakeholders. Armed with this knowledge, Mary could make sure that her division’s efforts lined up with the strategies and goals of the company’s top leadership.

When Mary got to Andrea’s office, she was somewhat surprised to find Andrea and some of her executive support team already assembled and prepared for the call. It was obvious to Mary that leadership took these quarterly calls seriously. As Mary sat down at the conference table, Andrea began to explain that the SEC requires that companies provide public and very broad disclosures. This type of financial transparency ensures that everyone from the big time

 

Wall Street firms to the Mom and Pop investor can have access to the same information at the same time. It also prevents “insider trading”

Andrea also mentioned that aside from such legal requirements, the company viewed these interactions as great marketing opportunities. She explained that Jack, the CEO, along with the entire investor relations team knew that key stakeholders would parse every word and carefully consider the detailed numbers that they were about to release.

And who were these stakeholders? They could be current owners and potential new owners, Wall Street Analysts, banks who may have lent or who are considering lending money to the company, Government regulators and even potential acquiring companies. Based on the stakeholder’s assessment of the published information, the company could see a positive or negative impact on stock price. Investors will either buy into a company’s visions and strategies, or they won’t.

Mary could see why Jack, Andrea and the entire management team invested so much time and energy to get things right. She wondered if all companies did that… Andrea went on to explain that all publically traded companies are required to disclose this information. Private companies generally have the option – but most choose not to be overly transparent with the information.

Jack, the CEO, pointed out that the key to a successful earnings call consisted of giving the right information and setting a proper tone. The goal: to build confidence across all divisions of the company. He also explained the importance of not giving away proprietary information that their competition could leverage against them. The entire leadership team spent a lot of time reviewing and discussing the disclosures of their top 4 competitors. Mary found it amazing that so much insight could be gained from listening to the quarterly calls!

 

Andrea suggested that Mary consider doing the same review for the main competitors of the Perfume Division she was running – just to see if she couldn’t gain some useful “competitive intelligence.” She reminded Mary that while companies are required to share relevant yet generic corporate information, large conglomerates may or may not share detailed information pertaining to specific divisions. There was a lot of “detective” work involved in this type of analysis -

Andrea explained to the assembled team that their company would breakdown and share revenue and operating margin results for their different geographic territories (including the US, Europe, Latin America and Asia), but that they don’t report the breakdown of results by division.

This struck Mary as being somewhat odd – perhaps even a bit counter-productive. After all, she thought that the investment community would want to understand how the Perfume Division was doing. Andrea agreed with Mary that the investment community would be interested in such data - but so would the company’s direct competitors! This is the tradeoff they had talked about earlier…how information must be prudently shared, without risking the loss of a competitive advantage. Andrea explained that they would only discuss division results in general terms when there was a significant material change in operations, or if they wanted to highlight something important or ground-breaking. If the Perfume Division started posting record sales numbers, they would certainly want to share that!

As she listened to Andrea’s strategies, she couldn’t help but think that it wouldn’t be long before her division would have some pretty phenomenal numbers to post and share… She couldn’t wait to see how Jack would leverage this required disclosure to build excitement and confidence in the Company’s strategy and financial results!

 

The earnings call was truly a way to “talk to the streets” in terms of sharing a company’s collective financial data – and it didn’t hurt that Mary had so much good information to share. As she began to assemble some documents to share at the next earnings call, Mary made a mental note of the fact that there was a lot was riding on her leadership at this point. She wanted the company to succeed in all aspects, and she was determined to do all she could do to help it reach the levels of success she felt were clearly in reach – starting with her department!