How Investor Relations Teams Can Manage through Uncertainty

Corporate earnings forecasts can have a major impact on a company’s stock performance, but how accurate are they? In fact, they are off the mark 70 percent of the time, Bloomberg reports.

According to a recent study, companies are able to provide accurate guidance about their earnings approximately 30 percent of the time. In addition, Bloomberg analyzed the performance of companies in the S&P 500 index over the past 60 quarters, and during the first fiscal quarter of 2023, companies within this prominent index managed to report earnings that aligned with the analysts' estimates only slightly above 3 percent of the time.

Bloomberg noted that chief financial officers are more likely to share very conservative estimates, which is understandable. The onslaught of Covid-19 in 2020 – and the pandemic’s far-reaching impacts across global economies made financial forecasting a matter of guesswork. One in four S&P 500 companies were not providing earnings per share guidance in 2020 or 2021.

But the pandemic was just a warm-up for the uncertainty that investor relations officers (IROs) need to deal with today. Since 2020, a supply chain crisis, the Russian invasion of Ukraine, and chronic inflation are just some of the issues that have rocked the IRO’s world. What’s more, IROs need to monitor sometimes polarizing perspectives and open-ended questions whose answers can have serious ramifications on the value of a publicly traded firm. For instance, whether a recession is going to hit global markets in 2023 – and when -- continues to be a matter of debate among economists.

In the face of uncertainty with financial forecasts, IROs need to create certainty elsewhere: by doubling down on the intangibles that can have an enormous impact on shareholder trust, such as the corporate growth strategy. This means, among other things, communicating clearly how you are:

• Investing in research and development.
• Diversifying your product or service offerings.
• Building a strong team.

Investing in research and development can help your organization stay ahead of the curve and develop innovative solutions to challenges that arise. This can lead to increased market share and revenue growth over time.  Diversifying your product or service offerings can help mitigate risk during times of uncertainty. It can help offset any changes in popularity or demand for one product to another or be justified by season/need. That way, if one product or service is struggling, you have others to fall back on.

But remember: you need to connect the dots and explain your rationale to your stakeholders – and this is where creating a compelling narrative comes into play. IROs have a huge opportunity to do a better job crafting a story about a company’s growth strategies and then tying those strategies back to shareholder value. For instance, Meta’s CEO Mark Zuckerberg famously laid out the company’s vision over a 10-year-growth plan in 2016 – a bold stake in the ground that Meta revisits periodically. Apple’s Tim Cook has, time and again, explained how the company’s spend on the Apple Watch ties to a broader vision for Apple to be a major player in the wellness care space. This kind of visionary messaging gives Apple a strong platform and context for sharing earnings numbers and forecasts.

It is imperative that IRO's corporate vision aligns with the values held by the CEO and key executives in order to achieve long-term success. For instance, a company can tell the story of its commitment to sustainability by sharing case studies and progress reports on its IR website.

At Investis Digital (iDX), we help IROs craft compelling narratives through our own corporate comms/IR expertise. We also publish some of our ideas with thought leadership. Managing through uncertainty is one of the major challenges that iDX discusses in a recently published white paper, How to Crush Every Investor Relations Challenge in Your Path. The white paper draws on 20+ years of experience helping IROs create compelling narratives that build trust with investors, as well as the data and insight we have collected over this time. Our strategic counsel, bespoke IR websites, data analytics, secure webcasting capabilities, and a 15-minute response time are all part of our IR offerings.

Learn more about them on our website, and read our white paper, How to Crush Every Investor Relations Challenge in Your Path, for more insight.