Friday, May 30th, 2008
visualizing the quarter

In a few weeks, we will be back into “earnings season,” when analysts and portfolio managers labor mightily to process the new information that seems to come from all corners at once.

Analysts at firms that provide research for others usually need to summarize the quarter as a part of their reports. An example might go something like this:

“It was a mixed Q3 for Bluestem Boutique. Sales for the quarter increased from $599.9 million to $660.4 million, an increase of 10.1% y/y. The consensus was for revenues to be right at $650 million. The company also guided higher for Q4. We had been looking for revenues in the coming quarter of $670.8 million, slightly ahead of the consensus — the company says it can do $687.4 million, implying a y/y CAGR of almost 14%. The trouble was with earnings, as this quarter’s EPS of $0.44 matched estimates of $0.44 (although someone on the call pointed out that it was actually a slight miss), and next quarter’s guidance was for $0.64, less than the consensus of $0.65 (and our too-optimistic $0.67).

“The problem is with gross margins. The consensus for the quarter was for 38.5%, and the actual was more than a percentage point lower, at 37.2%. Management doesn’t see a rebound to previous levels for several quarters. We don’t think the stock can perform if that’s the case, even with the good revenue picture. We would avoid owning it.”

That’s actually pretty easy to read relative to many published accounts.I often find that the number dump within some paragraphs of a research report is so thorough that it’s difficult to read the report or get the essential bits of information that the analyst is trying to convey. And not only does that fail the reader, it takes unnecessary time to compose such paragraphs. I know, I know, that’s what junior analysts are for, but I don’t see the value added in most cases from taking that approach. Yet even with this example, a simple image might be faster and more effective.

Let’s say that the user of the report is most concerned with the results versus consensus, a common approach. Perhaps this would suffice:

It does not provide all of the information of the text, but delivers the essential information quickly and easily. You can see how details could be added to show year-over-year changes or to-the-decimal-point actual numbers or other bits tailored to the organization. It could easily be scaled up to add more elements, or mutated to match the needs of a variety of different decision makers.  And, of course, it could be made prettier.

The essential point is this: We waste too much time on words (and, in research reports, embedded numbers) when a simple image could do the trick. “A picture is worth . . .”

Oh well, you’ve heard that before.