1. Fundamentals of
Business & Financial Journalism
Week 4: Covering corporate earnings stories
Jeffrey Timmermans
Monday, 15 October, 12

2. News Quiz
1. What is Huawei, and why is it in the news recently?
2. What does the International Monetary Fund think of the prospects for
the global economy?
3. Why is the beauty-care industry in Hong Kong in the news recently?
4. Who, or rather what, won the 2012 Nobel Peace Prize and why?
Monday, 15 October, 12

3. Why companies exist
✤ Allow individuals to pool capital and share risk
✤ To accomplish complicated tasks like international trade & creation of
complex products
✤ To make money (profit) for its owners
Monday, 15 October, 12

4. How companies function
Initial
capital
Additional
share/bond
Produce goods or sales
services
Use profit to grow
Sell goods for more company or
than cost of production compensate owners
for risk
Monday, 15 October, 12

5. Types of corporate stories
✤ Initial public offering (first sale of shares to public)
✤ New product/line of business
✤ Top executive changes
✤ Fundraising: secondary share sales & bond issues
✤ Mergers & acquisitions
✤ Earnings announcements
Monday, 15 October, 12

6. Spot/market comment model
✤ Change: What happened? What changed?
✤ Cause: Why?
✤ Expectations: What was expected to happen?
✤ Context: Is this the first? Only? Biggest? Consistent with others?
✤ Comment: What are people saying about it? Get quotes.
✤ Future: What is likely to happen next?
Monday, 15 October, 12

7. Spot news model (variant)
✤ What happened?
✤ Why did it happen?
✤ Key details of what happened
✤ Context & significance of what happened (“nut graf”)
✤ Consequences
✤ What’s next?
Monday, 15 October, 12

8. Bloomberg’s four-paragraph lead
✤ Theme: What & Why
✤ Authority: Quote from someone that backs up the theme
✤ Details: Additional info & data that “are essential to telling the story”
✤ What’s at Stake: Why people should care
Monday, 15 October, 12

9. Earnings announcements
✤ Every three or six months
✤ In most markets, companies must issue a profit-and-loss statement
showing (among other items):
✤ Revenue
✤ Cost of goods sold & other expenses
✤ Net profit
Monday, 15 October, 12

10. The importance of net profit
✤ Net profit, or earnings or profit attributable to shareholders, is the main
driver of share prices
✤ particularly expectations about net profit
✤ The definition is standard, so net profit is comparable across industries
✤ Net profit, after subtracting dividends, becomes working capital
Monday, 15 October, 12

11. Writing about net profit
✤ In the U.S., earnings stories typically focus on earnings per share (EPS)
✤ Always use diluted EPS rather than basic EPS
✤ In other markets, the focus is on the absolute earnings figure
✤ Make sure to clearly define the reporting period
✤ “...in the three months ended March 31, 2010.”
✤ Net profit can “rise” or “fall,” but a net loss will “widen” or “narrow”
Monday, 15 October, 12

12. Other measures of profit
✤ Gross profit
✤ Operating profit
✤ Ebidta (earnings before interest, depreciation, taxation &
amortization)
✤ Pretax profit
✤ Pro-forma net profit
Monday, 15 October, 12

13. Structure of an earnings story
✤ Change: How did net profit change from the same period a year
earlier?
✤ Cause: What was the cause of the change in net?
✤ Expectations: What was the market expecting for net?
✤ Context: The current environment and a company description
✤ Comment: from company executives and analysts
✤ Future: Any guidance from company or analysts about future profit?
Monday, 15 October, 12

14. Things to remember
✤ Compare the year-on-year change in revenue with the change in net
profit
✤ How does the company’s profit margin change and why?
✤ Compare costs with other companies in same industry
✤ Look for one-time gains or losses from asset sales or revaluations
✤ Look at how the company’s share price reacts to the earnings
announcement
Monday, 15 October, 12

15. Earnings stories: another look
BoCom profit rises, but growth slows
31 March 2010
The Wall Street Journal Asia
English
SHANGHAI -- Bank of Communications Co., China's fifth-largest lender by
Change
assets, posted a 5.6% increase in 2009 net profit, driven by higher revenue
from fee-based business, such as credit cards and wealth management.
Cause
The growth is the slowest since the state-run bank listed in Hong Kong in 2005,
as China's easy monetary policy weighed on the profitability of its lending
business. The bank, known as BoCom, said it will cut lending growth to 20% Context
this year, about half of last year's level, and expects profit to rise on the
rebound in the local economy.
The company, in which HSBC Holdings PLC owns a 19% stake, said its net
profit for the 12 months ended Dec. 31 was 30.12 billion yuan ($4.41 billion),
up from 28.52 billion yuan the previous year.
"I'm confident this year's earnings will be satisfactory and reasonable. We see
growth in our assets -- net interest margins will continue to recover from low Comment
levels last year," said Yu Yali, chief financial officer at BoCom.
Expectations?
Monday, 15 October, 12