WHILE his competitors lavish huge fees on his PR wire service, frugal billionaire Warren Buffett’s Berkshire Hathaway is being thrifty by keeping its earnings releases short and referring investors to complete disclosures on the company’s website.
Ironically, management at Business Wire, acquired by Buffett in March 2006, has argued vehemently against other companies following its parent’s lead. The wire service’s revenues are driven in large part by the length of its customers’ news releases.
In recent quarters, Berkshire Hathaway has issued a short news release via Business Wire inviting investors to visit the company’s website to view its full earnings information. Earnings releases, the company says, are “not adequate for making an informed investment judgment.”
Berkshire thrifty as competitors spend
Meanwhile, many of Berkshire Hathaway’s competitors in the property and casualty insurance industry are helping to pad Berkshire’s bottom line by paying Business Wire to distribute full-text earnings releases of up to 14,000 words.
The table below lists companies in the property and casualty insurance industry that use Business Wire to distribute their earnings releases. It shows the length of their Q3 2007 earnings releases measured using the word count function in Microsoft Word.
Company |
Q3 ’07 Release |
| Berkshire Hathaway | 638 words |
| Allstate Corporation | 14,805 words |
| American International Group, Inc. | 5,122 words |
| ACE Limited | 2,260 words |
| Loews Corporation | 3,705 words |
| MetLife, Inc. | 4,491 words |
| The Hartford Financial Services Group, Inc. | 5,698 words |
| The Travelers Companies, Inc. | 6,056 words |
Business Wire does not publicly disclose its fee schedule. However, based on the published rates for US national distribution of a 600-word release by its chief rival PR Newswire costs are in the range of $1.75 per word. At that rate, a company like Allstate is paying about $25,000 per earnings release, while Berkshire’s cost about $1,000.
Business Wire CEO’s contradiction
While Berkshire Hathaway relies on investors using its website to stay informed, Business Wire President and CEO Cathy Baron Tamraz has argued strongly against companies using their websites for earnings disclosure.
She was one of the fiercest critics of Sun Microsystems last year when the company asked the Securities and Exchange Commission to recognize that posting disclosure documents on company websites can meet the requirements of Regulation FD.
Berkshire Hathaway’s summarize-and-link approach is not endorsed by the PR wire service industry or the National Investor Relations Institute (NIRI). On its website, Business Wire talks only of “full-text” releases.
 |
| On Business Wire’s website they talk only of “full-text” releases and there’s no mention of Buffett’s thrifty method. |
Notice-and-link makes sense for disclosure releases
We at IR Web Report have long argued that in the Internet age, PR newswire services should not be forcing companies to buy services they don’t need by levying minimum fees based on 400- to 500-word releases.
Given that news releases today are accessed online, we believe modern earnings releases should consist of a brief notice of availability and links to the full disclosures on a company’s own website.
Based on Berkshire Hathaway’s own practices, Warren Buffett agrees.
Here is the text of Berkshire Hathaway’s Q3 2007 earnings release that was distributed via Business Wire. Also posted below is a similar earnings release distributed via Business Wire by Progressive Corp. At 400-words, it is even shorter than Berkshire’s.
Berkshire Hathaway Inc. News Release
November 2, 2007 5:06 PM ET
Omaha, NE (NYSE:BRK.A)(NYSE:BRK.B) — Berkshire’s operating results for the third quarter and first nine months of 2007 are summarized in the following paragraphs. However, we urge investors and reporters to read our 10-Q, which has been posted at www.berkshirehathaway.com. The limited information that follows in this press release is not adequate for making an informed investment judgment.
Earnings of Berkshire Hathaway Inc. and its consolidated subsidiaries for the third quarter and first nine months of 2007 and 2006 are summarized below. Earnings are stated on an after-tax basis. (Dollar amounts are in millions, except for per share amounts).
Third Quarter First Nine Months --------------------- --------------------- 2007 2006 2007 2006 ---------- ---------- ---------- ---------- Net earnings.............. $4,553 $2,772 $10,266 $7,432 Investment and derivative gains/losses............. 1,992 174 2,982 994 ---------- ---------- ---------- ---------- Operating earnings........ $2,561 $2,598 $ 7,284 $6,438 ========== ========== ========== ========== Net earnings per Class A equivalent share......... $2,942 $1,797 $ 6,644 $4,821 Investment and derivative gains per Class A equivalent share......... 1,287 113 1,930 645 ---------- ---------- ---------- ---------- Operating earnings per Class A equivalent share. $1,655 $1,684 $ 4,714 $4,176 ========== ========== ========== ========== Average Class A equivalent shares outstanding....... 1,547,368 1,542,173 1,545,128 1,541,581Note: Figures for the Class B shares are 1/30th those shown for the Class A.
An analysis of Berkshire’s operating earnings follows (dollar amounts are in millions).
Third Quarter First Nine Months ----------------- ----------------- 2007 2006 2007 2006 -------- -------- -------- -------- Insurance-underwriting.......... $ 486 $ 917 $1,719 $1,618 Insurance-investment income..... 922 759 2,532 2,244 Non-insurance businesses........ 1,172 978 3,115 2,673 Other........................... (19) (56) (82) (97) -------- -------- -------- -------- Operating earnings.............. $ 2,561 $2,598 $7,284 $6,438 ======== ======== ======== ========In our earnings summary, we distinguish between what we call “operating earnings” and investment and derivative gains/losses. Berkshire possesses a huge reservoir (about $35 billion on September 30, 2007) of pre-tax unrealized investment gains. The cashing of these in any given quarter (or the realization of losses, for that matter) can materially distort net income figures as well as comparisons between periods. We do not wish investors to mistakenly focus on a bottom-line number affected by large investment gains that do not stem from economic accomplishments during the reporting period and that have no concurrent impact on the intrinsic value of the company. Both trends in our operating businesses and their health are best judged by income before investment gains or losses.
Berkshire Hathaway and its subsidiaries engage in diverse business activities including property and casualty insurance and reinsurance, utilities and energy, finance, manufacturing, retailing and services. Common stock of the company is listed on the New York Stock Exchange, trading symbols BRK.A and BRK.B.
Certain statements contained in this press release are “forward looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are not guaranties of future performance and actual results may differ materially from those forecasted.
Comment on Regulation G
This press release includes certain non-GAAP financial measures. The reconciliations of such measures to the most comparable GAAP figures in accordance with Regulation G are included herein.
Berkshire presents its results in the way it believes will be most meaningful and useful, as well as most transparent, to the investing public and others who use Berkshire’s financial information. That presentation includes the use of certain non-GAAP financial measures. In addition to the GAAP presentations of net earnings, Berkshire shows operating earnings defined as net earnings exclusive of investment and derivative gains/losses.
Although the investment of insurance and reinsurance premiums to generate investment income and investment gains or losses is an integral part of Berkshire’s operations, the generation of investment gains or losses is independent of the insurance underwriting process. Moreover, under applicable GAAP accounting requirements, losses can be created as the result of other-than-temporary declines in value without actual realization or when certain types of investments are marked-to-market through earnings. In sum, investment and derivative gains/losses for any particular period are not indicative of quarterly business performance.
And below is a copy of Progressive Corp’s Q3 2007 earnings release distributed via Business Wire. It is just 401 words and includes a link to the full release on the company’s website.
Progressive Distributes September Results
October 10, 2007 8:48 AM ET
The Progressive Corporation today reported the following results for September and the third quarter 2007:
Month Quarter------------------------------------------- -------------------------- (millions, except per share amounts and ratios) 2007 2006 Change 2007 2006 Change --------- --------- --------- -------- -------- -------- Net premiums written $1,040.8 $1,054.7 (1)% $3,483.2 $3,581.5 (3)% Net premiums earned 1,061.2 1,087.0 (2)% 3,461.8 3,544.3 (2)% Net income 103.8 138.1 (25)% 299.2 409.6 (27)% Per share .15 .18 (18)% .42 .53 (21)% Pretax net realized gains (losses) on securities 32.9 6.0 448% 58.5 2.4 2338% Combined ratio 94.8 86.9 7.9 pts. 93.7 87.3 6.4 pts. Average diluted equivalent shares 701.8 766.9 (8)% 710.8 772.2 (8)% ---------------------------------------------------------------------- ------------------------------------------- (in thousands) Policies in September September Force 2007 2006 Change --------- --------- --------- Total Personal Auto 7,031.1 6,901.1 2% Total Special Lines 3,140.4 2,905.5 8% Total Commercial Auto 540.9 505.8 7%See the complete release at http://investors.progressive.com/releases/2007/pdf/mreport_0907.pdf for further month and year-to-date information.
Progressive is scheduled to hold a one-hour conference call to address questions on Friday, November 2, 2007, at 9:00 a.m. eastern time, subsequent to the posting of our Shareholders’ Report online and the filing of our Quarterly Report on Form 10-Q with the SEC. Registration for the teleconference and webcast is scheduled to be available at http://investors.progressive.com/events.asp on or after October 15, 2007.
About Progressive
The Progressive Group of Insurance Companies, in business since 1937, is the country’s third largest auto insurance group and largest seller of motorcycle and personal watercraft policies based on premiums written, and is a market leader in commercial auto insurance.
Progressive is committed to becoming consumers’ #1 choice for auto insurance by providing competitive products and rates that meet drivers’ needs throughout their lifetimes, superior online and in-person customer service, and best-in-class, 24-hour claims service, including its concierge level of claims service available at service centers located in major metropolitan areas throughout the United States.
Progressive companies offer consumers choices in how to shop for, buy and manage their auto insurance policies. Progressive offers its products, including personal and commercial auto, motorcycle, boat and recreational vehicle insurance, through more than 30,000 independent insurance agencies throughout the U.S. and online and by phone directly from the Company. To find an agent or to get a quote, go to www.progressive.com.
The Common Shares of The Progressive Corporation, the Mayfield Village, Ohio-based holding company, are publicly traded at PGR. For more information, including a guide to interpreting the monthly reporting package, visit www.progressive.com.
If it’s good enough for Warren Buffett…
There you have it, a simple and very obvious way to cut your newswire costs as demonstrated by Business Wire’s pragmatic owner Warren Buffett and the uniquely web-savvy Progressive Corp.
In a weak economy and with IR department budgets likely to come under pressure, such frugality probably will be welcomed by shareholders and managements everywhere.
Funny how wire services don’t tell you about this. Funnier, too, how the major IR associations and media, which rely heavily on wire services for sponsorships and advertising, also turn a blind eye to such obvious ways for companies to cut their disclosure costs.
And don’t forget you read it here first, where we are proud to be 100% independent of the IR services industry and where the advice we provide is steadfastly focused on what’s good for public companies and their investors.
Related articles:
A “notice-and-access” model for news releases
A mock “notice-and-access” earnings release
Dominic (bio & disclosures) is IR Web Report‘s founder and an online investor relations consultant. He advises leading public companies and investor relations service providers worldwide on using the web for disclosure, engagement and profile building. You can contact him via the contacts page.
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