LETTER TO THE EDITOR: PUBLIC COMPANIES SHOULD NOT DO AWAY WITH QUARTERLY EARNINGS
Originally Posted August 29th, 2018: https://woodworthfund.blogspot.com/2018/08/letter-to-editor-public-companies.html (Some links below may be broken)
Our two cents on quarterly earnings reporting made its way into Pamplin Media Group's Forest Grove News Times. See the letter below.
Public companies should not do away with quarterly earnings
In an early-morning Tweet earlier this month, President Donald Trump took up advice from business leaders to look into removing required quarterly earnings reporting by public companies to the Securities and Exchange Commission, in favor of a six-month reporting timeline — similar to reporting done in European markets. This suggestion comes from Indra Nooyi, PepsiCo chairman and chief executive officer, with claims of boosting business growth and calming volatility in the markets.
We (managers of the Woodworth Contrarian Stock & Bond Fund, a hedge fund based in McMinnville) disagree. Removing quarterly reporting only removes transparency and hurts investors.
The bottom line here is that more transparency will always be a good thing: It promotes change and holds public companies accountable. In seeking to reform short-term-ism, policymakers should look closer at stock price-based CEO compensation structures, which encourage leaders of public companies to inflate the share price by any means, even if it's just short term.
The volatility argument, which claims that quarterly earnings make share prices much more speculative leading up to the earnings date and resulting reactions. Assume the share price of XYZ stock in is up 4 cents for the quarterly report in anticipation. On a six-month reporting, it may very well be up 8 cents proportionally with pent up speculation.
In the words of CNBC's Bob Pisani on Trump's Tweet, "Who wins when there is less information out there?"
Would the SEC endorse this? Probably not, but the Trump administration has proven both determined and unconventional over the past two years.
Quinn Millegan and Drew Millegan, McMinnville
Feel free to contact us at our office during the week between 6:30 AM and 2:30 pm PST at 1-800-651-1996.
https://pamplinmedia.com/fgnt/37-opinion/404639-301051-letters-to-the-editor-aug-29-2018
