As earnings season approaches, brace yourself for the usual flood of corporate jargon in final results and trading updates. Management teams have a knack for dressing up bad news, and if you don’t speak their language, you might miss what’s really going on.
Here’s a handy translation guide to help you cut through the fluff and get straight to the truth.
The Art of Hiding Bad Results: A Guide to Management Buzzwords
The Earnings Illusion
- Adjusted Earnings = Earnings excluding everything that’s gone wrong.
- Adjusted EBITDA = A made-up positive number.
- Adjusted EBITDAR = Things must be really bad.
- Adjusted LBITDA = Trading is so bad we couldn’t even make up a positive number.
Expectations? Think Again
- Broadly in line = Not in line.
- Expectations moderated = Expectations missed.
- Below expectations = At least a 10% miss.
- Materially below expectations = At least a 20% miss.
The Reality of ‘Strong’ Performance
- Robust performance = Sales are down.
- A focus on margins = Sales have plummeted.
- Resilient performance = Sales have collapsed.
- Strong Balance Sheet = Weak Balance Sheet.
Creative Cost Management
- Providing a solid foundation = Surely things can’t go lower, can they?
- Unusually strong H2-weighting = It’ll take a miracle to avoid a profit warning.
- IFRS16 = All of our money is going to the landlord.
- Non-recurring costs = Recurring costs we wish didn’t keep happening.
- Exceptional costs = Costs associated with previous mistakes (preferably blamed on former management).
- One-off costs = The results look better if we ignore them.
- Careful cost management = Only the board received a bonus this year.
The Great Discounting Game
- Customer acquisition costs = Discounting.
- Margin erosion = Discounting.
- Investing in our customer proposition = Discounting.
- Becoming price-competitive = Discounting.
- Promotional activity = Discounting.
When ‘Stakeholders’ Are Mentioned… Beware
- Mentions “stakeholders” = The equity has no value.
The Free Cash Flow Mirage
- Positive operational free cash flow = Free cash flow is negative.
Buzzwords That Mean Nothing
- Teach-in = A presentation, but more pretentious.
- Over-index = Above average, but more pretentious.
- Thought leadership = Research, but more pretentious.
- Pipeline = Hope, lightly quantified.
- Brand positioning = Has anyone ever heard of us?
- Profitable growth = A meaningless but nice-sounding phrase when there’s nothing else to say.
So next time you’re reading an earnings report, remember: the truth is in what they don’t say. And if something sounds too good to be true, it probably is.
