Blog — 3 Sep, 2022
Analyzing Sentiment in Quarterly Earnings Calls Q3 2022
By Alyssa Bonifacio
Transcript Sentiment Scores use natural language processing to provide a way to look at earnings call transcripts in a quantitative fashion. In this analysis, we looked at the sentiment from the latest earnings call transcripts of the S&P 500 occurring in Q3 2022*.
*Q3 refers to the date the earnings call transcript was released and not the earnings period.
Net Positivity
At the component-level, we looked at how executives scored in net positivity within the presenter speech and answer sections. This is a useful analysis because we can compare the net positivity of how executives scored during their prepared remarks section versus how they scored during the Q&A section with the analysts. In Q3 2022, presenter speech had a higher net positivity score in the S&P 500 with 1.36 relative to the answer section with 0.91. The sectors also scored better during the presenter speech section versus the answer one, and all sector scores in both sections fell below their prior four quarter average. It is also interesting to note that while Consumer Staples and Energy had ranked the lowest in Net Positivity with 1.26 and 1.27 in presenter speech, both were included in the highest performing sectors in the Answer section with 1.23 and 1.04 respectively.
At the total transcript-level, the S&P 500 had a net positivity score of 0.95 in Q3 2022, below the previous four quarter average of 1.12. Communication Services (1.18), Consumer Discretionary (1.10), and Consumer Staples (1.09) were the sectors with the highest performance, while Financials (0.54), Materials (0.85), and Real Estate (0.94) had the lowest net positivity scores in the latest quarter. All sectors fell below their previous four quarter average.
Looking at the scores from the previous quarter we see that Q2 2022 net positivity for the S&P 500 is at 1.02, higher than Q3 2022 score of 0.95. Utilities (0.82) and Energy (0.84) which were among the lowest performing sectors in Q2 2022, exhibited increases in net positivity with 1.02 in the latest quarter. Communication Services (1.28) and Consumer Discretionary (1.28) were the top performing sectors in both periods but showed a downtrend in net positivity in Q3 2022. It is also interesting to see that Information Technology had the second highest score in the prior quarter with 1.11 but ranked fourth from the bottom this quarter. On the chart below we can see how net positivity scores trend versus the previous quarter and previous four quarter average.
At the total transcript level, the five highest scores in the S&P 500 were Aon plc (NYSE:AON) with 2.55, Thermo Fisher Scientific Inc. (NYSE:TMO) with 2.32, AmerisourceBergen Corporation (NYSE:ABC) with 2.27, Sysco Corporation (NYSE:SYY) with 2.18, and, Ventas (NYSE:VTR) with 2.14. The five lowest scores were Chubb Limited (NYSE:CB) with -0.81, Universal Health Services (NYSE:UHS) with -0.61, Cincinnati Financial Corporation (NasdaqGS:CINF) with -0.59, JPMorgan Chase & Co. (NYSE:JPM) with -0.54, and M&T Bank Corporation (NYSE:MTB) with -0.51.
Numeric Transparency
At the total transcript level for Q3 2022, the S&P 500 had a numeric transparency score of 2.18, below the previous four quarter average of 2.35. The sectors with the highest scores were Utilities with 2.35 and Real Estate with 2.33. Interesting observation as Real Estate is also among the lowest performing sectors for net positivity. Sectors that ranked bottom in Numeric Transparency were Materials, Communication Services, and Consumer Staples with 1.85. The latter two sectors were also among the sectors with the highest Net Positivity scores. From these numbers we observe that net positivity performs better in sectors where numeric transparency is lower.
Looking at the executive level scores for numeric transparency, we can see the S&P 500 scores for Q3 2022 have increased slightly to 2.38 versus Q2 2022 with 2.36. Real Estate and Utilities were again the highest performing sectors with 2.54 and 2.53 respectively, but both were at their lowest scores in the last four quarters. We can see from the chart below how the executive level scores have shifted over the last four quarters.
Furthermore, entities with the highest Q3 2022 executive scores in numeric transparency include Monster Beverage Corp. (NasdaqGS:MNST) with 5.88, Host Hotels & Resorts (NasdaqGS:HST) with 5.01, Monolithic Power Systems (NasdaqGS:MPWR) with 4.63, Molina Healthcare (NYSE:MOH) with 4.61, and Bio-Rad Laboratories (NYSE:BIO) with 4.56. Alternatively, the entities with the lowest scores include PepsiCo (NasdaqGS:PEP) with 0.59, Kimberly-Clark Corp. (NYSE:KMB) with 0.72, Eastman Chemical Company (NYSE:EMN) with 0.73, The Hershey Company (NYSE:HSY) with 0.80, and DISH Network Corporation (NasdaqGS:DISH) with 0.86.
Language Complexity
The S&P 500 language complexity score at the total transcript level was 12.26, slightly below the previous four quarter average of 12.31, implying that most entities used more comprehensible language in the most recent calendar quarter versus previous quarters. The lowest sector scores (more favorable) were Industrials with 11.85, Materials with 12.01 and Consumer Staples with 12.03. The highest sector scores (less favorable) were Utilities with 12.78, Health Care with 12.68, and Communication Services with 12.46.
Analyst Selectivity Ratio
For the most recent quarter the S&P 500 analyst selectivity ratio is 45.01%, above the previous four quarter average of 44.98%. The sectors with the highest selectivity ratios were Industrials with 51.50%, Materials with 51.29%, and Health Care with 49.20%. The sectors with the lowest ratios were Utilities with 28.43%, Communication Services with 31.30%, and Energy with 35.71%.
Source: S&P Capital IQ Pro. Data as of August 31, 2022.
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, and 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. Scores 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: 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. 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. Most scores fall between 0 to 12%.
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. Most scores fall between fall between 8 to 16.
Analyst Selectivity Ratio: 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%.
References:
Zhao, F. "Natural Language Processing – Part II: Stock Selection" (September 2018). Natural Language Processing – Part II: Stock Selection | S&P Global Market Intelligence (spglobal.com)
Zhao, F."Natural Language Processing – Part III: Feature Engineering" (January 2020). Natural Language Processing – Part III: Feature Engineering | S&P Global Market Intelligence (spglobal.com)
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