Delivering the Bad News… on Earnings

About 20 percent of companies have reported first-quarter earnings below expectations. Why leaders need to brush up on delivering disappointing news.

If first-quarter earnings are any guide, the earnings story is changing for many companies—and corporate leaders need to brush up on how they tell it. 

Already, some major organizations have reported big earnings misses, suggesting that inflation, interest-rate hikes, ongoing supply-chain disruption, and other macroeconomic factors are starting to impact performance. Roughly half of the companies in the S&P 500 have reported earnings so far, and about 20 percent of those came in below expectations. A number of major firms have cut financial forecasts for the year as well. Investors are taking notice—in April, the S&P 500 and Dow Jones Industrial Index each posted their worst performance since the start of the pandemic, and the Nasdaq had its worst monthly showing since 2008. “Customers and investors are seeing the top-line headlines and watching their portfolios,” says Ann Vogl, a senior client partner in Korn Ferry’s Marketing Officers practice. 

For many companies, the gloomy earnings climate is a reversal not only of the historic bull run of the last decade, but also of their performance during the pandemic. After years of basically steady profitability and growth, leaders are entering an unfamiliar environment—one that investors aren’t used to hearing about. As Peter McDermott, a senior client partner in Korn Ferry’s Global Corporate Affairs practice, sees it, striking the wrong tone could send stock prices swooning. “Investors know what the issues are,” he says. “They want to know what the company is doing about them.” 

With analysts projecting revenue and earnings growth to decline over the next few quarters, McDermott says building trust and confidence among stakeholders now is key. “Even if it is negative news, sharing it in a transparent manner is valued,” he says. That’s part of the reason why more companies are again starting to provide financial guidance, after declining to make any predictions during the pandemic.

But customers, employees, and investors don’t just want to know what companies are doing to navigate the downturn, says Vogl—they also want to know how they plan to do it. She notes that companies are no longer being rewarded for cutting their way to profitability, for instance. “A lot of companies cut to protect profits at the beginning of the pandemic, and employees paid the price,” says Vogl. “Investors don’t want to see companies taking that approach again to counter current events.” 

The fear is that the tough economic climate could lead to a pile-on effect, with negative implications for everything from remote work to sustainability initiatives. Experts say leaders are already privately expressing recessionary fears, though these haven’t yet impacted hiring or growth plans. That’s not to say that they won’t, however, which could open the door to potentially calling more employees back to the office full-time or making layoffs to cope with the financial pressure.  

Vogl says that kind of reactionary move would be a mistake. She says stakeholders still want to see a commitment to strategic initiatives like sustainability and diversity and inclusion. She advises leaders to “focus on the good” and how it will benefit the organization over the long term. “Stakeholders want customers’ and employees’ needs to be part of how organizations strategically and proactively address these economic challenges,” she says.