This assignment explores the information communicated by companies on a quarterly basis including the content of the interactive quarterly conference call that company executives conduct with analysts and the content of research reports prepared by analysts for their clients.
Case background information
A companys annual report is only one source of information about a companys financial performance. Given that the annual report is released well after year-end (to allow time for closing the books and the annual audit), other sources of more timely information are of great interest to investors. Two key sources are quarterly earnings announcements and conference calls by a companys management team and equity analyst reports. This assignment explores both important alternative sources of information.
Baxter International, Inc. (BAX) recently released its quarterly earnings information for the 3rd quarter of its 2023 fiscal year. Like most companies, Baxters management team holds a quarterly conference call with the analysts that follow the company to present the key results of earnings and performance for the quarter and allow analysts to ask questions about recent performance and plans for the coming quarter, year, and beyond. Baxter held such a conference call on November 2, 2023 to discuss its third quarter earnings report. Analysts often will update the information they share with investors about a companys stock after an earnings announcement and interactions with management in the conference calls.
THIS ASSIGNMENT HAS TWO PARTS:
1)REVIEWING THE PRESS RELEASE OF THE EARNINGS ANNOUNCEMENT, THE ACCOMPANYING FINANCIAL SCHEDULES, AND LISTENING TO THE WEBCAST OF THE CONFERENCE CALL BETWEEN BAXTER MANAGEMENT AND THE EQUITY ANALYSTS THAT FOLLOW BAXTER.
2)ASSESSING THE ANALYSTS REACTIONS TO THE QUARTERLY EARNINGS ANNOUNCEMENT.
Materials needed are part of Assignment 2 on Blackboard website under the Assessments link.
Under the Blackboard Assessments link for Individual Assignment #2:
Baxters Q3 2023 Earnings Press Release
Financial Schedules to accompany the press release.
Analyst reports Baxter from: Argus Research, Price Target Research, and SADIF Research
Case assignment
You are asked to read the Earnings Press Release, associated Financial Schedules of Baxter International. You are then asked to listen in on the webcast replay of the quarterly earnings conference call of the company. These materials are available in the Past Events (2023) section of the Investor Relations portion of Baxters website, at the address below. The webcast you are to listen to is called was held on Nov 2, 2023. The conference call webinar lasts for approximately 60 minutes. Click on the Webcast-Replay link in the events page to be redirected to the webcast. Access is free, but you will need to register with your UIC email address.
Investor Relations Website: (https://investor.baxter.com/investors/events-and-news/events/default.aspx). Cut and Paste this Link and then change to year to 2023 and You should see the Link to the Webcast of the Conference call.
PLEASE ANSWER THE FOLLOWING QUESTIONS AFTER REVIEWING THE CASE MATERIALS AND LISTENING TO THE CONFERENCE CALL. BE SURE TO COMPLETE ALL PARTS OF THE CASE ASSIGNMENT FOR FULL CREDIT. I WOULD ADVISE READING ALL THE QUESTIONS BEFORE LISTENING TO THE CONFERENCE CALL SO THAT YOU CAN MAKE NOTES AS YOU LISTEN TO THE CALL.
Part 1) Earnings announcement and the conference call with analysts
Who are the key players on the conference call?
What information was relayed in press release and earnings presentation and in the executive teams discussion of the results during the call?
Which members of Baxters management team were involved on the call? What are their roles with the company? Which played a more active role in the call?
Which other members of management do you think would have been helpful to have on the call? What types of information or insights do you think these additional participants might have been able to provide? Be specific.
What were the key financial performance metrics that Baxters management emphasized when presenting the results of the quarter in the accompanying press release and earnings presentation? You should include at least 3 metrics. Are any of the key metrics considered non-GAAP measures?
Summarize Baxters performance for the quarter on each of the key metrics discussed in part (a). How does performance for each of the three metrics compare to the results for the metric for the third quarter of last year (Q3, FY 2023)?
What do each of these metrics tell you about Baxters performance (i.e., why are they useful metrics)? Which of the metrics do you find to be the most useful and meaningful in evaluating Baxters performance and why? Be specific.
Did management provide guidance for future sales and/or earnings in the press release, conference call slides or on the call? If so, describe which items are forecasted and for which future period(s). How does the guidance compare with the results of the recent performance (e.g., what is the % increase or decrease in the forecasted metric from its prior period)?
Baxter assignment (Part 1 continued)
Interaction between management and analysts
Note: The question-and-answer portion of the conference call begins at approximately the 18:45 minute mark in the webinar.
Describe the nature of the questions posted by analysts (i.e., what were some of the key issues they focused on)? Which aspects of Baxters performance or business operations were most heavily probed? Discuss at least 3 distinct issues or questions in your answer.
Which analyst questions did you find most insightful to help you understand the drivers of Baxters recent performance? Be specific about the questions and what you learned from the questions and/or response by management.
Which questions did you find most insightful to help you think about Baxters future performance (for example, if you were asked to forecast future sales and profits)? Discuss why you found these to be useful questions.
What questions do you wish had been asked by the analysts to help interpret Baxters results or assess future performance expectations? Create at least 3 questions and discuss why you would find them useful.
Part 2) Analysts role and responses to the earnings information and conference call exchange
Financial analysts employed at brokerage houses are typically assigned to follow individual firms within an industry (e.g. most of the analysts who wrote the reports you are reading will cover Baxter and other companies that compete with Baxter). Based on the analyst reports from Argus, Price Target and SADIF, included in the case, describe the type of information that is included in the reports.
What information in the reports do you think would be most useful to investors? Be specific about the information and why you think it would be useful.
Discuss any link you see between the new information in the analysts reports and both the Q3 2023 earnings announcement detail and the discussion in the conference call.
Stock markets are constantly updating expectations of a companys performance. In that vein, a companys stock price prior to an earnings announcement captures an expectation of the valuation impact of the news that will be released in the announcement. Much of the stock markets expectation is formed by a consensus analyst forecast.
Describe what is meant by the term consensus analyst forecast?
Other than consensus analyst forecast, what other information affects the markets expectations (name at least 2 others and explain how they affect expectations)
Did the Market Value of Baxter go up or down in the 3 days window surrounding the earnings announcement and conference call? (3 Day window begins the business day before the conference call and ends the day after.)
If you had invested in Baxters stock the day before the conference call and sold your stock the days after what would your percentage return over the 3 day window be. (use a website such as yahoo finance to get daily stock price data)
How does the return on Baxters stock over the 3 day window compare to the returns on the S&P 500 over the same 3 day period?
