By Dominic Jones | Published: February 24, 2008 | 
Printer version
| Comment |
Earnings releases — the Warren Buffett way
WHILE his competitors lavish huge fees on his PR wire service, frugal billionaire Warren Buffett’s Berkshire Hathaway is being thrifty by keeping its earnings releases short and referring investors to complete disclosures on the company’s website.
Ironically, management at Business Wire, acquired by Buffett in March 2006, has argued vehemently against other companies following its parent’s lead. The wire service’s revenues are driven in large part by the length of its customers’ news releases.
In recent quarters, Berkshire Hathaway has issued a short news release via Business Wire inviting investors to visit the company’s website to view its full earnings information. Earnings releases, the company says, are “not adequate for making an informed investment judgment.”
Berkshire thrifty as competitors spend
Meanwhile, many of Berkshire Hathaway’s competitors in the property and casualty insurance industry are helping to pad Berkshire’s bottom line by paying Business Wire to distribute full-text earnings releases of up to 14,000 words.
The table below lists companies in the property and casualty insurance industry that use Business Wire to distribute their earnings releases. It shows the length of their Q3 2007 earnings releases measured using the word count function in Microsoft Word.
Company |
Q3 ‘07 Release |
| Berkshire Hathaway | 638 words |
| Allstate Corporation | 14,805 words |
| American International Group, Inc. | 5,122 words |
| ACE Limited | 2,260 words |
| Loews Corporation | 3,705 words |
| MetLife, Inc. | 4,491 words |
| The Hartford Financial Services Group, Inc. | 5,698 words |
| The Travelers Companies, Inc. | 6,056 words |
Business Wire does not publicly disclose its fee schedule. However, based on the published rates for US national distribution of a 600-word release by its chief rival PR Newswire costs are in the range of $1.75 per word. At that rate, a company like Allstate is paying about $25,000 per earnings release, while Berkshire’s cost about $1,000.
Business Wire CEO’s contradiction
While Berkshire Hathaway relies on investors using its website to stay informed, Business Wire President and CEO Cathy Baron Tamraz has argued strongly against companies using their websites for earnings disclosure.
She was one of the fiercest critics of Sun Microsystems last year when the company asked the Securities and Exchange Commission to recognize that posting disclosure documents on company websites can meet the requirements of Regulation FD.
Berkshire Hathaway’s summarize-and-link approach is not endorsed by the PR wire service industry or the National Investor Relations Institute (NIRI). On its website, Business Wire talks only of “full-text” releases.
 |
| On Business Wire’s website they talk only of “full-text” releases and there’s no mention of Buffett’s thrifty method. |
Notice-and-link makes sense for disclosure releases
We at IR Web Report have long argued that in the Internet age, PR newswire services should not be forcing companies to buy services they don’t need by levying minimum fees based on 400- to 500-word releases.
Given that news releases today are accessed online, we believe modern earnings releases should consist of a brief notice of availability and links to the full disclosures on a company’s own website.
Based on Berkshire Hathaway’s own practices, Warren Buffett agrees.
Here is the text of Berkshire Hathaway’s Q3 2007 earnings release that was distributed via Business Wire. Also posted below is a similar earnings release distributed via Business Wire by Progressive Corp. At 400-words, it is even shorter than Berkshire’s.
Berkshire Hathaway Inc. News Release
November 2, 2007 5:06 PM ET
Omaha, NE (NYSE:BRK.A)(NYSE:BRK.B) — Berkshire’s operating results for the third quarter and first nine months of 2007 are summarized in the following paragraphs. However, we urge investors and reporters to read our 10-Q, which has been posted at www.berkshirehathaway.com. The limited information that follows in this press release is not adequate for making an informed investment judgment.
Earnings of Berkshire Hathaway Inc. and its consolidated subsidiaries for the third quarter and first nine months of 2007 and 2006 are summarized below. Earnings are stated on an after-tax basis. (Dollar amounts are in millions, except for per share amounts).
Third Quarter First Nine Months --------------------- --------------------- 2007 2006 2007 2006 ---------- ---------- ---------- ---------- Net earnings.............. $4,553 $2,772 $10,266 $7,432 Investment and derivative gains/losses............. 1,992 174 2,982 994 ---------- ---------- ---------- ---------- Operating earnings........ $2,561 $2,598 $ 7,284 $6,438 ========== ========== ========== ========== Net earnings per Class A equivalent share......... $2,942 $1,797 $ 6,644 $4,821 Investment and derivative gains per Class A equivalent share......... 1,287 113 1,930 645 ---------- ---------- ---------- ---------- Operating earnings per Class A equivalent share. $1,655 $1,684 $ 4,714 $4,176 ========== ========== ========== ========== Average Class A equivalent shares outstanding....... 1,547,368 1,542,173 1,545,128 1,541,581Note: Figures for the Class B shares are 1/30th those shown for the Class A.
An analysis of Berkshire’s operating earnings follows (dollar amounts are in millions).
Third Quarter First Nine Months ----------------- ----------------- 2007 2006 2007 2006 -------- -------- -------- -------- Insurance-underwriting.......... $ 486 $ 917 $1,719 $1,618 Insurance-investment income..... 922 759 2,532 2,244 Non-insurance businesses........ 1,172 978 3,115 2,673 Other........................... (19) (56) (82) (97) -------- -------- -------- -------- Operating earnings.............. $ 2,561 $2,598 $7,284 $6,438 ======== ======== ======== ========In our earnings summary, we distinguish between what we call “operating earnings” and investment and derivative gains/losses. Berkshire possesses a huge reservoir (about $35 billion on September 30, 2007) of pre-tax unrealized investment gains. The cashing of these in any given quarter (or the realization of losses, for that matter) can materially distort net income figures as well as comparisons between periods. We do not wish investors to mistakenly focus on a bottom-line number affected by large investment gains that do not stem from economic accomplishments during the reporting period and that have no concurrent impact on the intrinsic value of the company. Both trends in our operating businesses and their health are best judged by income before investment gains or losses.
Berkshire Hathaway and its subsidiaries engage in diverse business activities including property and casualty insurance and reinsurance, utilities and energy, finance, manufacturing, retailing and services. Common stock of the company is listed on the New York Stock Exchange, trading symbols BRK.A and BRK.B.
Certain statements contained in this press release are “forward looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are not guaranties of future performance and actual results may differ materially from those forecasted.
Comment on Regulation G
This press release includes certain non-GAAP financial measures. The reconciliations of such measures to the most comparable GAAP figures in accordance with Regulation G are included herein.
Berkshire presents its results in the way it believes will be most meaningful and useful, as well as most transparent, to the investing public and others who use Berkshire’s financial information. That presentation includes the use of certain non-GAAP financial measures. In addition to the GAAP presentations of net earnings, Berkshire shows operating earnings defined as net earnings exclusive of investment and derivative gains/losses.
Although the investment of insurance and reinsurance premiums to generate investment income and investment gains or losses is an integral part of Berkshire’s operations, the generation of investment gains or losses is independent of the insurance underwriting process. Moreover, under applicable GAAP accounting requirements, losses can be created as the result of other-than-temporary declines in value without actual realization or when certain types of investments are marked-to-market through earnings. In sum, investment and derivative gains/losses for any particular period are not indicative of quarterly business performance.
And below is a copy of Progressive Corp’s Q3 2007 earnings release distributed via Business Wire. It is just 401 words and includes a link to the full release on the company’s website.
Progressive Distributes September Results
October 10, 2007 8:48 AM ET
The Progressive Corporation today reported the following results for September and the third quarter 2007:
Month Quarter------------------------------------------- -------------------------- (millions, except per share amounts and ratios) 2007 2006 Change 2007 2006 Change --------- --------- --------- -------- -------- -------- Net premiums written $1,040.8 $1,054.7 (1)% $3,483.2 $3,581.5 (3)% Net premiums earned 1,061.2 1,087.0 (2)% 3,461.8 3,544.3 (2)% Net income 103.8 138.1 (25)% 299.2 409.6 (27)% Per share .15 .18 (18)% .42 .53 (21)% Pretax net realized gains (losses) on securities 32.9 6.0 448% 58.5 2.4 2338% Combined ratio 94.8 86.9 7.9 pts. 93.7 87.3 6.4 pts. Average diluted equivalent shares 701.8 766.9 (8)% 710.8 772.2 (8)% ---------------------------------------------------------------------- ------------------------------------------- (in thousands) Policies in September September Force 2007 2006 Change --------- --------- --------- Total Personal Auto 7,031.1 6,901.1 2% Total Special Lines 3,140.4 2,905.5 8% Total Commercial Auto 540.9 505.8 7%See the complete release at http://investors.progressive.com/releases/2007/pdf/mreport_0907.pdf for further month and year-to-date information.
Progressive is scheduled to hold a one-hour conference call to address questions on Friday, November 2, 2007, at 9:00 a.m. eastern time, subsequent to the posting of our Shareholders’ Report online and the filing of our Quarterly Report on Form 10-Q with the SEC. Registration for the teleconference and webcast is scheduled to be available at http://investors.progressive.com/events.asp on or after October 15, 2007.
About Progressive
The Progressive Group of Insurance Companies, in business since 1937, is the country’s third largest auto insurance group and largest seller of motorcycle and personal watercraft policies based on premiums written, and is a market leader in commercial auto insurance.
Progressive is committed to becoming consumers’ #1 choice for auto insurance by providing competitive products and rates that meet drivers’ needs throughout their lifetimes, superior online and in-person customer service, and best-in-class, 24-hour claims service, including its concierge level of claims service available at service centers located in major metropolitan areas throughout the United States.
Progressive companies offer consumers choices in how to shop for, buy and manage their auto insurance policies. Progressive offers its products, including personal and commercial auto, motorcycle, boat and recreational vehicle insurance, through more than 30,000 independent insurance agencies throughout the U.S. and online and by phone directly from the Company. To find an agent or to get a quote, go to www.progressive.com.
The Common Shares of The Progressive Corporation, the Mayfield Village, Ohio-based holding company, are publicly traded at PGR. For more information, including a guide to interpreting the monthly reporting package, visit www.progressive.com.
If it’s good enough for Warren Buffett…
There you have it, a simple and very obvious way to cut your newswire costs as demonstrated by Business Wire’s pragmatic owner Warren Buffett and the uniquely web-savvy Progressive Corp.
In a weak economy and with IR department budgets likely to come under pressure, such frugality probably will be welcomed by shareholders and managements everywhere.
Funny how wire services don’t tell you about this. Funnier, too, how the major IR associations and media, which rely heavily on wire services for sponsorships and advertising, also turn a blind eye to such obvious ways for companies to cut their disclosure costs.
And don’t forget you read it here first, where we are proud to be 100% independent of the IR services industry and where the advice we provide is steadfastly focused on what’s good for public companies and their investors.
Related articles:
A “notice-and-access” model for news releases
A mock “notice-and-access” earnings release
Please Support Our Work
Email your friends about us. Subscribe to our paid publication Online IR Trends Quarterly. Get us to recommend improvements to your IR website (we're really good at it).
February 25th, 2008 at 8:55 pm
As a business reporter I can attest to the fact that shorter releases are better. Long releases clog up our systems. They make me suspicious of a company’s intentions. What are they trying to bury in the dump of information they are pushing at us?
As for the costs companies are incurring to do this, they might as well be pissing away money.
February 26th, 2008 at 2:52 pm
Dear Dominic, thanks for this post. Very interesting indeed but while I agree that what you call the ‘Warren Buffett way is a smart way for letting interested parties know about Quartlery results, etc.
There is just one problem, when you click on the link given in the press release, all you get is the main page of Berkshire Hathaway.
Considering that elsewhere you mention that you are the short attention span person (20s or so see here - Acergy S.A. gets my attention, then squanders it), it took me a bit more to find my way through this stuff to get to the detailed report.
Would it not have been nice to give us a direct link to a page with the press release and more and somewhere an option to download the material? Of course, all giving me a chance to do it within 20 seconds :-)
Thanks for the nice post. WebUrs
20 of for doing this,
February 26th, 2008 at 8:02 pm
@WebUrs,
Yes, a direct link is better. The Progressive Corp. approach is an example. Our “model” release that we provided last year is an even better example.
February 28th, 2008 at 1:59 pm
Dominic - interesting post… I was raised that investors, ultimately, invest in two kinds of companies - the 800-pound, market-moving gorillas and the easiest to understand in a given market segment.
Since Berkshire certainly falls into the former category,I believe it is able to put out a release of any length, on a wire service or not on a wire service, and have it tracked by investors.
For the vast majority of other companies, shorter releases that are not easily found don’t help them win the “easiest to understand in a given market segment” battle. As you stated in a subsequent post, “IR is a competition for attention”… most companies have to work a lot harder to gain the attention that 800-pound gorillas like Berkshire enjoy.
- Rob
February 28th, 2008 at 6:59 pm
Rob,
Actually, this approach would work better for a small company than a large, well-known one. The length of a release has nothing to do with visibility.
In fact, it is more to a small company’s benefit to drive interested investors to its website than have them read the full-text on some other site. By driving investors to their site, they have an opportunity to engage those visitors with other relevant information. They can educate the visitor about their business in ways that cannot be done effectively in a news release on some external site.
If the release is viewed only on an external site, such as Yahoo! Finance or in the investor’s inbox, the user’s next click is probably some other company’s information.
And, of course, this approach makes more sense for smaller companies because it is less costly. Lower costs, better communication — it’s a no-brainer. And we haven’t even begun to talk about the search engine visibility benefits of this approach, something smaller companies can also benefit from.
March 3rd, 2008 at 1:32 pm
Dominic - I think we’ll have to agree to disagree on this one… from where I sit, the harder you make an investor work for the information they expect to get, the less likely you’ll keep or attract them.
- rgb
March 3rd, 2008 at 1:46 pm
Rob,
The day one click of a mouse is “hard” is the day we all should head for the bunkers because the world as we know it will be over. I still don’t understand how longer releases are easier to find than shorter ones, but I hope you will at least put the Warren Buffett idea in front of your clients, give them the pros and cons, and let them decide.
If it’s working for Berkshire, Progressive and even small companies like little Dundee Wealth Management, why not your clients? I realize you’re probably paid by the hour and longer releases take more hours, but someone still has to write the long release on the company’s website.
And there’ll be scope to do some interesting things on the companies’ websites that they cannot afford to do now because they’re blowing big chunks of their budgets on wire releases of dubious value. With the savings they’ll realize from the shorter wire service release, they could do a short video highlights package to go along with their earnings release.
That’d be better than plain old text don’t you think? Don’t you think investors would find that more appealing and easier to digest? I’m just putting the ideas out there, do with them what you will.
March 3rd, 2008 at 3:38 pm
[...] n’a rien de révolutionnaire. Pour vous en convaincre, si c’est nécessaire, lisez donc ce billet de Dominic Jones qui donne ici un bon petit tuyau aux entreprises américaines pour faire des [...]
March 3rd, 2008 at 8:43 pm
[...] Earnings releases the Warren Buffett way [...]
March 4th, 2008 at 1:52 pm
Dominic - Now, now, big fella, no need to get pissy just because I disagree with your opinion (my mistake, I thought blogging was about the free sharing of ideas…)
I don’t disagree that the Web is a powerful IR tool that is horribly under utilized by most companies… if you read my blog, you’d know that about me.
All I am saying is that from my experience - which includes both time as an IRO and as a consultant - investors don’t want to look for information (one click or not), they want to have the information given to them, they want you tell connect the dots for them… they want you to clearly state your value proposition for them… there are too many choices and not enough time for companies to let the numbers speak for themselves.
Berkshire and Progressive are household names so they can get away with it - there might even be a small cap here or there that can get away with it… but, by and large, using the earnings release to drive traffic to the Web site is not sound advice, in my opinion (which is what I get paid for, not writing releases).
March 4th, 2008 at 2:04 pm
Rob,
Agree to disagree. It’s good advice. And we’re arguing about one click. Which seems rather silly. And I’ll think about what you’ve said, but right now I can’t imagine changing my mind on this.
If I’m pissy, it’s because I’m not being compensated to share these ideas and it just pisses me off that what I’m offering for free is dismissed out hand when there’s evidence in the real world that it’s working.
March 29th, 2008 at 8:10 pm
[...] I suspect Business Wire has blackballed me from commenting on their blog because they don’t like what I have to say about wire services in general, BW in particular, and its parent Berkshire Hathaway’s frugal earnings release practices. [...]
July 31st, 2008 at 12:19 am
[...] Earnings releases — the Warren Buffett way (February 24, 2008) [...]
August 8th, 2008 at 3:10 am
[...] at the model release we prepared using Merck’s Q3 2007 earnings announcement for ideas. The Berkshire Hathaway and Progressive Corporation summary releases are another [...]