Tone and content of CEO and CFO earnings calls shift in wake of COVID-19 crisis

Gies College of Business Professor Fei Du found publicly traded companies are changing how they speak to stockholders and analysts in the wake of the COVID-19 crisis. CEOs and CFOs are delivering positive framed messages with good faith and forward-looking information in earnings conference calls. In the Q&A portion of the session, they are guiding analysts to focus on the positive changes that will benefit the companies in the long run.

Du, an assistant professor of accountancy and Arthur Anderson Fellowship in Accountancy and R.C. Evans Data Analytics Fellow at Gies College of Business, analyzed earnings call transcripts of the Top 10 industry leaders in consumer staples, technology, and communications. Companies are urged to disclose COVID-19’s impact on their businesses in earnings conference calls, and SEC chairman Jay Clayton encourages companies to issue forward-looking disclosures to investors and be as transparent as possible.

“Du’s insights offer another facet of how business leaders are reacting to the pandemic and reframing how they talk about their business performance,” said Brooke Elliott, Associate Dean and EY Distinguished Professor of Accounting at Gies College of Business.

The full session, “Good Faith and Forward Looking: How Do CEOs and CFOs Talk about the Impact of the Coronavirus Shutdown on Corporate Profits,” is available here. It is the seventh installment of Gies Business’ Global Challenges in Business webinar series.

First quarter earnings forecasts dropped for all 11 sectors in the S&P500. While some industries were hit by an unprecedented drop in demand, others face unprecedented growth opportunities. Du did a line-by-line transcript analysis of both the prepared remarks and responses to analyst questions. She compared the most current quarter earning conference calls of 29 companies to those of the previous pre-coronavirus quarter. Du focused on companies in tech, healthcare and consumer staples, including Microsoft, Pfizer, Procter & Gamble and Costco.

“Overall, the total number of words did not change much from the previous quarter, but the content, tone and style of their disclosure strategy did. The increase in the use of negative words was consistent, noticeable, and significant across categories. What’s even more interesting is the frequency of positive words also increased,” said Du. “What changed was the framing of statements, with an increase in words that positively framed uncertainty.”

Du also looked at the shift in overall content strategies. In the previous quarter, companies started their financial overview focused on sales and quarter-to-quarter comparison with a detailed breakdown of products, geographic regions, and lines of services. In the current quarter emphasis shifted to people and human needs with details on their priorities for responding to COVID-19 on every aspect of the company, including employees, customers, partners, communities and the government.”

“It was hard to find CEOs and CFOs who didn’t talk about gratitude. They spoke about the privilege of helping people in this challenging moment and thanked their employees as they spoke about their health and safety. They were being very truthful and transparent and didn’t pretend to know all the answers,” she said.