The Case For The Early Release Of Earnings

Someone leaked a memo from new Hewlett-Packard (NYSE: HPQ) CEO Leo Apotheker where he discussed the firm’s dismal near-term prospects. HP shares fell. The large technology company will move up its earnings release for the February to April quarter a day earlier than planned. Microsoft (NASDAQ: MSFT) was caught off guard when its earnings were released before the company’s intended time on June 27. Traders moved the stock before Microsoft became aware of the problem. CEO Steve Ballmer decided that from now on, the firm’s earnings will only be available on its website.

The trouble with earnings data is that companies, particularly large, public ones, know most or all of their numbers days if not weeks before they come out. These firms have their financial departments break down the data over and over before the numbers are shown to the public, but no CFO of an S&P 500 company would admit that they know the figures before releasing them to investors.

Companies often “warn” on earnings when they know their figures will be weak as Research In Motion (NASDAQ: RIMM) did in April. Its shares suffered, but at least the company did not have the information reach the market through a leak by a disgruntled employee. In January, Liz Claiborne declared that its earnings would disappoint Wall Street, days before it issued final numbers.

The age of electronic data allows just one person the ability to send one file with a firm’s sales and profits before the company can put the information out with more detail and its spin on the results. Someone sent Apotheker’s email to senior management about the company’s sales difficulty and need for cost control to the press.

The early release of critical financial data may not be a priority for the SEC. It should be. For the time being, the most obvious solution is for public companies to “pre-release” at least the most basic information about their quarterly data. It would level the playing field for investors, some of whom exploit the edge they have when numbers are leaked. It would also save many  companies a great deal of  humiliation.

Douglas A. McIntyre