No ringing endorsement for conference calls

While some companies swear by phone forums, majority forgoes them

September 19, 2004|By Bill Atkinson | Bill Atkinson,SUN STAFF

One-third of the roughly 15,000 publicly traded companies in America engage in a quarterly ritual known as the conference call. Company executives discuss their recent earnings and field questions from a few analysts and investors, while journalists and anyone else who wants to can listen in.

The calls, a Wall Street staple, enable executives to brag about their company's accomplishments, detail strategies and explain misfires. For analysts and investors, they offer a forum to challenge, prod and even butter up management. For regulators, they fulfill a federal rule that requires equal access to information about companies for analysts and traders.

But some companies, including well-known names, forgo the quarterly call. They range from Warren Buffett's Berkshire Hathaway Inc. to Kmart Corp., from Baltimore-based T. Rowe Price Group Inc. to freight manager Expeditors International of Washington Inc.

Some of these companies say their press releases and detailed earnings reports filed with the Securities and Exchange Commission speak for themselves. Others contend the calls wrongly encourage a short-term mentality to boost earnings.

Some say the forum allows "short sellers," who profit from a fall in the stock price, to badger management in an effort to drive down the stock.

The telephonic, virtual conference has grown immensely popular in the decade since federal securities regulators stiffened insider trading rules. Executives are forbidden from sharing sensitive information with select stock analysts or investors while excluding others - the grist of the recent Martha Stewart case.

"Our message is in our press release," said Joseph Croteau, treasurer of T. Rowe Price Group Inc., the Baltimore-based mutual fund company that doesn't hold quarterly calls. "We think we have full, fair and timely disclosure in press releases and SEC filings."

"We don't think quarterly earnings are that relevant to our company. It wouldn't make a lot of sense for us to have a quarterly call," said David Foy, chief financial officer of White Mountains Insurance Group Ltd., a Bermuda-based financial services holding company.

Of the country's 15,000 publicly traded companies, about 3,000 are covered closely by Wall Street analysts whose firms sell their research. But more than 5,000 companies regularly hold quarterly conference calls, according to figures compiled by Thomson StreetEvents, which runs a Web site that tracks corporate events.

"Companies want to get their message out, and the best way to do that is the conference call," said Chad Moros, account director of Thomson StreetEvents in Boston. "It looks bad if they don't have conference calls."

`Risk of going dark'

Some experts say that companies that shun the practice risk not being covered by analysts, whose reports and recommendations can influence individual and large investors.

"I bet their analysts hate them," Boris Feldman, a securities litigator at Wilson Sonsini Goodrich & Rosati in Palo Alto, Calif., said of companies that don't hold the conference calls.

"I think most companies believe that it is required if you want your stock to be followed," said David McShea, a corporate finance lawyer at Perkins Coie, a Seattle, Wash.-based law firm. "There is a real risk of going dark by not having analysts" cover the company.

While the Internet has vastly increased the amount of information investors can mine about a publicly traded company, analyst recommendations and reports can make people more aware of a stock, just as advertising sells a product.

But some companies that reject the practice of earnings calls contend they can become forums for grandstanding analysts and short-sellers with an ulterior motive. Short-sellers want the price of a stock to fall, so they borrow shares with the hopes that they can buy them when they decline.

"There are [analysts] that really play hardball and dirty ball," said Louis M. Thompson, president and chief executive of the National Investor Relations Institute, a Vienna, Va.-based association for corporate investor relations officers. "They have the short position and really pound away at management hoping to pound the stock price down. How fair is that?"

Ironically, even some analysts wonder about the value of the calls that are meant, in effect, as a courtesy for them. Thirty-three percent of analysts gave conference calls an A or B rating, while 40 percent rated them average, according to a recent survey by the CFA Institute, a Charlottesville, Va.--based association for analysts.

"I think that is frankly because of the amount of [corporate] spin on the conference calls," said Rich Wyler, a CFA spokesman. "One of our concerns is that sometimes negative analysts are mysteriously not called on to ask questions, while the analysts who have positive ratings on the stock are given ample time."

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