Breakwater Strategy is proud to present our inaugural “Framing the Quarter” earnings guide, crafted to support C-Suite executives and Investor Relations Officers as they navigate the Q1 2023 earnings season.
“Framing the Quarter” covers 10 areas of interest to today’s investors, providing a foundation for effective communications before, during, and after Q1 earnings calls. By preparing for these topics –– and their anticipated areas of interest –– your company’s leaders can demonstrate confidence, adaptability, and resilience. In doing so, your firm will be better positioned to prosper against the test of time.
1. Sino-American Tension: How will the worsening relationship between China and the U.S. affect supply chains and the broader regulatory environment that U.S. companies face? How will this situation influence the speed at which U.S. manufacturers move their facilities out of China? How should investors consider the capital investment needed to shift operations to other markets in response to these geopolitical issues? What is the marginal impact of relocating facilities from China to other countries (i.e., the additional costs or benefits associated with such a move)? What percentage of your company’s operations have exposure to China, in terms of both imports and exports?
2. China’s Pandemic Reopening: With China’s economy reopening, many commentators predict a general inflation impact in the 0.4 to 0.6 range, with even higher inflation for specific commodities. How will this reopening affect your company’s current guidance ranges, strategies, and profit margins? How should investors think about the combined effect of the reopening and pent-up demand on your company’s sales volumes and potential for growth?
3. Global Growth Outlook: With global growth expected to slow down in the coming quarters due to tightening monetary policy, possible tailwinds (positive factors) from faster-than-expected interest rate pullback, and a tamer outlook for commodity prices (potentially offset by higher inflation levels such as those recently seen in the U.K. and lower yields), how should investors think about your company’s results for the rest of the year in this global growth context? Do you believe your company will benefit from any specific tailwinds or face particular risks from headwinds (negative factors) or country- or region-specific issues?
4. AI Integration: As generative Artificial Intelligence becomes more widely available and integrated into various industries, how should investors think about its application within your business? What is your company’s strategy for directing investment in generative AI, and what impact do you anticipate from this investment? Will your company experience short-term margin compression (reduced profit margins) due to AI investments, followed by longer-term margin expansion (increased profit margins) as a result of cost savings? Do you see AI as an “efficiency” play (i.e., mainly focused on improving operational efficiency), or do you plan to leverage AI to gain a competitive advantage in your industry?
5. Shifting Employment Landscape: With unemployment rates predicted to rise from the mid-3% range to the mid-4% range in the latter half of 2023, how should investors think about your company’s ability to attract and retain talent in relation to your competitiveness? If the moderation in employee costs (as indicated by the Employment Cost Index) represents a potential increase in EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization), is this increase due to pricing cycles that have factored in higher employment costs, resulting in near-term margin expansion? Is the margin expansion sustainable in the long run? Should investors start incorporating this margin expansion into their financial models for 2024?
6. ESG Retreat: Given the intensification of the ESG debate in Q1 2023, how should investors think about your company’s ESG and sustainability goals? Has your company made any adjustments to its ESG goals, is it not planning to make changes, or is it considering whether to make changes? Amid growing politicization, how does your company plan to measure and communicate progress on its ESG and sustainability goals to investors and other stakeholders?
7. ERM Confidence: In light of the recent challenges at Silicon Valley Bank and Credit Suisse, which have called into question the quality of enterprise risk management (ERM) practices, how should investors think about your company’s ERM practices, and why are they of a high standard? What should give investors confidence in the way your company’s ERM practices are applied? For globally oriented organizations, how have ERM practices matured over the course of the pandemic? As manufacturers are relocating operations from China and the broader footprint minimizes geographic exposure, how should investors think about the potential margin dilution effect (reduced profit margins) resulting from reductions in associated scale?
8. Capital Return: Given the significant focus on returning capital to shareholders in the technology and oil and gas sectors, particularly through increasing or initiating dividends and share buybacks, how should investors think about your company’s capital policy for the rest of the year? What is the opportunity for improved efficiency to drive higher levels of capital return to shareholders? How does your company balance its capital allocation between returning capital to shareholders, reinvesting in the business, and maintaining financial flexibility for future growth opportunities or potential market challenges?
9. Office Strategy: Considering the recent study by Kastle Systems on office occupancy and comments from Meta’s Mark Zuckerberg on office-based employee productivity, how should investors think about your company’s hybrid work policy? Does your current hybrid work policy create a competitive advantage for your company? Is your hybrid work policy aligned with the industry, or are you taking a different approach? In light of the slowly increasing unemployment rate, are you becoming more focused on returning to the office to create potential margin tailwinds (positive effects on profit margins)?
10. Pay Transparency: Given the significant shift in the pay transparency environment, with new laws in New York and California leading to over 75% of job postings including salary ranges, how should investors think about the impact of these pay transparency laws on your company? Do you view pay transparency laws as a headwind or tailwind for your company? Is there any aspect of the impact of these pay transparency laws that could have a positive or negative influence on your company’s culture?
As investor expectations continue to evolve, Breakwater Strategy equips you with the essential tools to engage in meaningful dialogues and foster trust across the Four Vectors. Reach out to chart your course ahead.