Blog — 14 Jul, 2021
Analyzing Sentiment in Quarterly Earnings Calls - Q2 2022
By Nicholas Ephraim
Transcript Sentiment Scores use natural language processing to provide a way to look at earnings call transcripts in a quantitative fashion. Capital IQ Pro provides net positivity, numeric transparency, language complexity, and analyst selectivity ratio metrics for transcripts at the:
1) Total level
2) Speaker level, such as executive or analyst
3) Component level, such as presentation operator message, presenter speech, question, or answer
Scores for companies are based on the most recent transcript of an earnings call in the calendar quarter that the event occurs and are typically available 3 hours after a transcript is published to CIQ Pro. Scores are most effective when used to determine trends in sentiment by comparing current scores for a company vs. the prior quarters’ scores of the same company.
Net Positivity
The net positivity score is based on the ratio of positive to negative words from the Loughran & McDonald’s (LM) Sentiment Word Lists and compares that to the total number of words.
At the total transcript level for CQ2 2022*, the S&P 500 had a net positivity score of 1.02, below the previous four quarter average of 1.19. The sectors with the highest net positivity were Communication Services and Consumer Discretionary with 1.28, and the lowest performing sectors were Financials with .71, Utilities with .82, and Energy with .84. We can see below all the sectors fall below their previous four quarter average.
To analyze this further we looked at net positivity at the executive and analyst level. Overall, executives of the S&P 500 had a score of 1.17, while the analyst had a score of .42 — indicating quite a large discrepancy between the two groups. Although at the total transcript level Communication Services and Consumer Discretionary had the highest net positivity, analysts had a much dimmer view with scores of .39 and .62, respectively. Similar to the total transcript level scores, we see below that the 'Analyst' and 'Executive' scores fall below the previous four quarter average.
For net positivity at the total transcript level, the five highest scores in the S&P 500 were Genuine Part Company (NYSE:GPC) with 2.87, Sysco Corp. (NYSE:SYY) with 2.84, Fortune Brands Home & Security (NYSE:FBHS) with 2.64, Adobe (NasdaqGS:ADBE) with 2.53, and Ventas (NYSE:VTR) with 2.40. The five lowest scores were Cincinnati Financial Corp. (NasdaqGS:CINF) with -.93, Loews Corp. (NYSE:L) with -.55, Globe Life (NYSE:GL) with -.37, Edison International (NYSE:EIX) with -.32, and JPMorgan Chase & Co. (NYSE:JPM) with -.30.
Numeric Transparency
The numeric transparency score is the ratio of numbers to words. A higher value means more use of numbers relative to words, which signifies a higher level of transparency. This is considered more objective and precise and thus, more favorable.
At the total transcript level for Q2 2022, the S&P 500 had a numeric transparency score of 2.16, below the previous four quarter average of 2.31. The sectors with the highest scores were Utilities with 2.42, Real Estate with 2.34, and Financials with 2.31. Interesting given Utilities and Financials were among the lowest performers for net positivity score. The lowest performing sectors for numeric transparency were Consumer Staples with 1.79, Materials with 1.91, Communication Services with 1.97, followed closely by Consumer Discretionary with 1.98. Again, interesting to see Communication Services and Consumer Discretionary included among the lowest scores, since they were the highest sectors for the net positivity score. From this data we can infer an inverse relationship between net positivity and numeric transparency.
Looking at the executive level scores for numeric transparency, we can see overall for the S&P 500 scores have decreased to the lowest point in the last four quarters with 2.37. We can see executives have a lower ratio of numbers to words in a period of volatility. At the executive level, Utilities and Real Estate again were the highest performing sectors with 2.66 and 2.60, respectively. On the chart below we can see how the executive level scores have changed over the last four quarters.
Again looking at the executive level scores for numeric transparency, the entities with the highest Q2 2022 scores include Monster Beverage Corp. (NasdaqGS:MNST) with 7.18, Globe Life (NYSE:GL) with 5.67, Bio-Rad Laboratories (NYSE:BIO) with 5.08, Hess Corp. (NYSE:HES) with 4.99, and Host Hotels & Resorts (NasdaqGS:HST) with 4.84. Alternatively, the entities with the lowest scores include The Hershey Company (NYSE:HSY) with .38, PepsiCo (NasdaqGS:PEP) with .42, BlackRock (NYSE:BLK) with .58, and Las Vegas Sands Corp. (NYSE:LVS) and Expedia Group (NasdaqGS:EXPE) tied with .78.
Language Complexity
We use the Gunning Fog Index as a proxy for language complexity. Each score can be interpreted as the number of years of formal education a person needs to understand the text on the first reading. A lower score denotes simpler language and is viewed favorably.
The score for language complexity at the total transcript level for the S&P 500 was 12.26. We can see in the most recent quarter the score for the S&P 500 fell slightly below the previous four quarter average of 12.31, showing entities having less complex language versus previous quarters. The lowest sector scores (more favorable) were Industrials with 11.88, Materials with 11.94, and Real Estate with 11.97. The highest sector scores (less favorable) were Utilities with 12.79, Health Care with 12.64, and Communication Services with 12.60.
Analyst Selectivity Ratio
An analyst selectivity ratio is the percent of active analysts covering the stock that are allowed to ask questions during the call. A higher value is viewed favorably, and scores will range from 0% to 100%.
For the most recent quarter the S&P 500 analyst selectivity ratio was 44.26%, slightly below the previous four quarter average of 44.84%. The sectors with the highest selectivity ratios were Industrials with 51.58% and Financials with 50.53%. The sectors with the lowest ratios were Communication Services with 29.42%, Utilities with 30.01%, and Energy with 35.32%.
*Q2 refers to the date the earnings call transcript was released and not the earnings period.