For example, the IR Director, who was located in Dallas, Texas, urged his team to take steps to avoid another revenue miss in the following quarter (i.e., 1Q16), writing in an email to Womack: “Chris, we have a tendency to focus on EPS and have recently missed the mark on consolidated revenue. We need to make sure our story gets consensus trued up for both EPS as well as revenue.” When Womack responded with an analysis of analysts’ revenue estimates for 2016 showing that the consensus revenue estimate for 1Q16 was higher than AT&T’s internal forecast at the time, the IR Director replied: “We will have to nip 1Q in the bud, otherwise we will be in the same spot we’ve been the last few quarters, i.e. missing revenue.”
AT&T did not experience its “revenue miss” as a failure by analysts to estimate revenue correctly. Nor did it exactly experience it as a failure by AT&T to earn enough revenue. It experienced it as a failure by AT&T to tell its story correctly, through analysts, so that the analysts’ revenue estimates would be just a hair below what AT&T actually reported.
So when it seemed likely that they would miss revenue estimates for the first quarter of 2016, they tried to “nip 1Q in the bud” by normal legal means, i.e. announcing in some public forum that revenue would be lower than expected:
After receiving these actual quarter-to-date results and learning that wireless equipment revenue and upgrade rates were on track to fall below analysts’ forecasts, AT&T determined to make a public disclosure to manage market expectations.
AT&T briefly considered issuing a Form 8-K to address, among other things, the accelerating downward trend in its upgrade rate and wireless equipment revenue. It elected instead, however, to have its CFO address the issue at an investor conference on March 9, 2016, at which the CFO was already scheduled to speak.
But then they sort of chickened out of actually saying what they meant:
During the CFO’s remarks at the March 9 conference, which were webcast, the CFO referred back to his comments from AT&T’s 4Q15 earnings release regarding the decline in wireless equipment revenue and stated that he “would not be surprised” to see that trend continue.
The CFO gave no quantitative guidance about AT&T’s wireless equipment revenue or any other metrics for 1Q16. Asked specifically by the conference host to do so, AT&T’s CFO stated that he could “only talk about up through the fourth quarter” and repeated the figures he relayed in January 2016 during AT&T’s 4Q15 earnings call.
Basically they wanted to say publicly “hey revenue is going to be even worse than you expect,” but they felt uncomfortable actually doing that. It feels scary, somehow, for a CFO to give specific forward guidance at a conference; that feels like something you should say officially, in writing, or not at all. On the other hand what you probably should not do is this:
Following the CFO’s remarks at the March 9 conference, AT&T’s IR Department developed a plan to contact individual analyst firms whose estimates were higher than AT&T’s projections. The purpose of this outreach was to get each analyst firm to lower its revenue estimate sufficiently to bring the resulting consensus estimate down to the level that AT&T expected to report.
AT&T and Womack, Evans, and Black understood that they needed the analyst firms to lower their revenue forecasts by a total dollar amount that, in the aggregate, was large enough to lower the consensus estimate to an amount AT&T could meet.
And:
As Womack, Evans, and Black also understood, the IR Department’s outreach to analysts and its objectives were a top priority at the company. For example, after receiving a report on March 22, 2016, showing that analysts were still forecasting AT&T’s 1Q16 revenue to be over $1 billion higher than AT&T’s internal estimate, the CFO stopped by the office of the IR Director to make sure that his team was “working the analysts that still have equipment revenue too high.” The CFO was assured that it was the IR Department’s “top priority over the next few weeks.”