Adopt Essential Earnings Writing Rules

By Chris Roush
August 22, 2006

Late July and early August is prime earnings season, when companies whose fiscal year coincides with the calendar year have reported second-quarter earnings. And earnings stories are the bread and butter of business journalists.

Yet, I still saw a lot of earnings reports written that fail some of the basic tenets of proper reporting of such stories.

So, let's go over some essential earnings writing rules:

1. When calculating the earnings growth or decline, focus on the net income or net loss, not the earnings per share. Companies can manipulate their EPS growth by decreasing the number of shares outstanding through share repurchase programs.

2. Leads need to emphasize why a company's earnings rose or fell during the quarter. Don't just tell the reader that the earnings rose or fell by a certain percentage. They'll want to know the reason.

3. Context, context, context. If a company's earnings have fallen after quarters of increases, then you'll need to tell the reader the last quarter in which earnings fell. Was there a loss in the quarter? Then tell the reader when the last quarterly loss occurred. Net income rose 49 percent? When was the last quarter that profits rose faster?

4. Listen to the conference call. Sometimes, the story is not the press release with the numbers, but what the executives say to the analysts and investors later in the day. One telltale sign is to watch how the stock price reacts while you're listening to the call. If the price begins to move up or down dramatically, then something newsworthy was said.

5. Compare a company's quarterly earnings to the same quarter from the previous year, not the previous quarter. Most businesses are cyclical, making the better comparison the same time a year ago. You can compare, for example, Coke's second-quarter earnings to the first quarter because it's hotter in the second quarter and more people are thirsty.

6. Who are you going to quote? Increasingly, I'm seeing investors in the stock being quoted about the earnings, not buy-side analysts. While both have a bias, the investors have less of a conflict of interest.

7. Don't forget to compare the income growth to a major competitor. If Lowe's net income is growing faster than Home Depot's, then that's a good indication it's performing better.

Got any other suggestions for earnings stories? Post a comment.

Copyright © 2008 Donald W. Reynolds National Center for Business Journalism