Big Words Flying on Earnings Call Means Get Ready for Bad News

(Bloomberg) -- Feeling queasy as a chief executive steps up the fancy talk when discussing results? With good reason.

A study of conference calls by S&P Global found the average length of sentences and the proportion of polysyllabic words employed was higher for firms disclosing negative news, such as an earnings miss. Those with higher levels of complexity in their language took fewer questions from analysts, the examination of second-quarter calls found.

It’s all related, said Frank Zhao, a quantitative analyst at S&P. When fewer analysts are allowed to speak, the company’s shares trail the market over the next two months. That’s probably because the company spent so much time on the call going on about its results that it barely got around to calling on anyone.

And going on about results means the results are bad.

The findings give investors something else to keep an eye on as third-quarter earnings season is underway. Profits are expected to post the biggest slowdown in six years after analysts lowered their growth estimates by more than half to about 3 percent to reflect the impact of hurricanes.

To contact the reporter on this story: Lu Wang in New York at lwang8@bloomberg.net.

To contact the editors responsible for this story: Arie Shapira at ashapira3@bloomberg.net, Chris Nagi, Richard Richtmyer