"Everything You Ever Wanted to Know About Earnings"-Verifying the Numbers
Wednesday, April 18, 2007PAUL KANGAS: During earnings season, you may frequently hear the name Thomson Financial. The financial data firm has become a go-to source for earnings information. As we continue our series "Everything You Ever Wanted to Know About Earnings," Suzanne Pratt looks at the role Thomson's data plays on Wall Street.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: Quarterly earnings season is just beginning, and Thomson financial analyst John Butters is readying for a busy stretch. Butters and his colleague, David Dropsey, answer Thomson's earnings hotline in its Boston office, questions from journalists about quarterly profits. UNIDENTIFIED MALE: I'm comfortable with that. It looks like it's a pretty substantial miss. But $1.15, it looks likes we're adding back $0.03 to the $1.12 that they reported on a GAP basis.
UNIDENTIFIED MALE: It looks like they're reporting their fourth quarter. The mean estimate is for $0.01 per share.
PRATT: Thomson's earnings division, also known as First Call, reviews earnings reports from thousands of public companies, determining the earnings per share number that investors should watch. It also tracks earnings estimates from Wall Street analysts, which are then used to create consensus numbers for thousands of public companies. If a company misses, matches or beats the consensus, the stock will often react. That's partly why Thomson has become a major force on Wall Street. Thomson First Call's Boston office is also responsible for sifting throughout analysts' reports looking for changes in estimates and stock ratings. Those changes are then entered into the Thomson's database. On a busy day, it can mean thousands of data entries. Thomson analyst David Markwarth heads the team in charge of that task.
DAVID MARKWARTH, MGR. NORTH AMERICAN ESTIMATE OPERATIONS, THOMSON FINANCIAL: We verify, analyze and process all data, including 26 data items. But our core values are really EPS, sales, recommendations and target prices.
PRATT: Consensus estimates for each of the companies in the Standard & Poor's 500 are compiled in Thomson's database and result in a closely watched profit growth number for the S&P 500. The number is evaluated daily by several New York-based Thomson analysts led by director of research Mike Thompson.
MICHAEL THOMPSON, DIRECTOR OF RESEARCH, THOMSON FINANCIAL: I think we're comfortable with 7 to 8 percent at the end of the quarter, right? Or anybody disagree? Reasonable? So, in other words, First Calls stands at 4.3, but we believe that ultimately we're going to continue to see upward revisions in this number going into the quarter.
PRATT: Thompson says the number has evolved into a powerful measure of America's vast economy.
THOMPSON: The Thomson First Call aggregate growth number for S&P growth is absolutely one of the most vital numbers for the U.S. economy. Everybody looks at it because it really is the way you can tell how healthy U.S. corporations are.
PRATT: Thomson is not the only game in town. Reuters and Bloomberg also offer earnings information, although First Call remains the most well- known and respected. As for who's using and buying all of this valuable research, there are the usual suspects, including hedge fund managers and other professional investors. Thomson President Suresh Kavan says there are some unexpected users, too.
SURESH KAVAN, PRESIDENT, CUSTOMER SEGMENTS, THOMSON FINANCIAL: We also have some that perhaps you wouldn't expect, from the Federal Reserve to the IRS to the queen's bankers to governments. I think the Vatican is a customer. So, people who are interested in figuring out what is going to happen to the world's companies are our customers.
PRATT: Rich Steinberg of Steinberg Global Asset Management says the investing public can now also benefit from Thomson's earnings data, some of which is available on free web sites.
RICHARD STEINBERG, CHIEF INVESTMENT OFFICER, STEINBERG GLOBAL ASSET MANAGEMENT: Now, with the advent of the Internet, even the retail investor has the opportunity to see the basic mean estimates that are out there. They may not get the detail that we get from subscriptions that we pay our dollars for, but it gives the investor the opportunity to at least have a little bit of an edge and not be in the dark of what Wall Street is doing.
PRATT: Wall Street pros say First Call has become so critical to the investment community because expectations drive stock prices. Measuring those expectations in a systematic way is exactly what First Call does. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
