Blog — 26 Sep, 2023
Analyzing Sentiment in Quarterly Earnings Calls — Q3 2023
By Chirag Patel
Highlights
In Q3 2023, S&P 500 earnings call transcripts had an overall Net Positivity score of 1.18%, higher than Q2 2023 (1.15%) and also higher when compared to the average over the last 12 months (1.04%).
Overall, the S&P 500 had a Numeric Transparency score of 2.17%, a slight improvement from it’s Q2 2023 score of 2.12%, but lower than the last 12 month average of 2.31%.
S&P 500 constituents had a Language Complexity score of 12.36, up from Q1’s score of 12.34, showing the language in this quarter’s earnings call transcripts were slightly more complex and seen as less favorable.
Net Positivity
In Q3 2023, S&P 500 earnings call transcripts had an overall Net Positivity score of 1.18%, higher than Q2 2023 (1.15%) and also higher when compared to the average over the last 12 months (1.04%). With the S&P 500 holding onto strong gains for 2023, no further fallout from the banking crisis earlier this year and economic data signaling an end to interest rate rises, corporate executives have good reason to maintain their positivity. Consumer Discretionary had the highest Net Positivity score out of the individual sectors with 1.57%, increasing 0.02% from Q1 where the sector also claimed the top spot. Strong Net Positivity scores from Yum! Brands, Inc. (NYSE:YUM) with 2.72%, Starbucks Corporation, Inc. (NasdaqGS:SBUX) with 2.60%, and The TJX Companies, Inc. (NYSE:TJX) with 2.58% were the main drivers within Consumer Discretionary. After Consumer Discretionary, Communication Services was the next highest sector for Net Positivity with 1.52%, improving 0.07% compared to Q2 2023. The success of Communication Services came from a few constituent companies with high scores including Alphabet Inc. (NasdaqGS:GOOGL) with 2.50%, Comcast Corporation (NasdaqGS:CMCSA) with 2.32% and Electronic Arts Inc. (NasdaqGS:EA) with 1.88%. The sector with the lowest score of the quarter continued to be Financials with 0.83%, as the sector continues to recover from the banking crisis earlier this year. The good news is that the aggregate score for the sector improved from the previous sector. In fact, the lowest scored companies in the Financials sector were insurance companies which delivered weaker than expected results. The Progressive Corporation (NYSE:PGR) with -1.27% and The Allstate Corporation (NYSE:ALL) with -0.52% posted the weakest Net Positivity scores in Q3 2023. The next lowest sectors after Financials were Materials with 0.96% and Real Estate with 0.92%.
For Q3 2023, we also analyzed Net Positivity scores in the various sections of the earnings call transcripts. For the S&P 500 this quarter, the Presenter Speech section had a Net Positivity score of 1.61%, while the Answer section had a score of 1.13%, showing the Executives of these companies used less favorable language during Q&A compared to their prepared remarks. The sector with the least amount of variance between the two transcript sections was Communication Services, which received a Net Positivity score of 1.80% during the Presenter Speech and 1.57% during the Answer section. The sector with the largest variance between sections was Real Estate, where the Presenter Speech was 1.49% and the Answer Section was 0.84%.
Numeric Transparency
Overall, in Q3 2023, the S&P 500 had a Numeric Transparency score of 2.17%, a slight improvement from it’s Q2 2023 score of 2.12%, but lower than the last 12 month average of 2.31%. Utilities was once again the most transparent sector in the quarter with a score of 2.59%, driven by favorable scores from Edison International (NYSE:EIX) with 3.88%, Ameren Corporation (NYSE:AEE) with 3.39%, and NiSource Inc. (NYSE:NI) also with 3.39%. After Utilities we had Real Estate with a score of 2.37%, and Industrials with 2.32%. The least transparent sector this quarter was Communication Services with 1.83%, despite scoring well for Net Positivity. Some of the lower scores contributing to Communication Services were Netflix, Inc. (NasdaqGS:NFLX) with 0.79%, Live Nation Entertainment, Inc. (NYSE:LYV) with 0.83% and Paramount Global (NasdaqGS:PARA) with 1.13%. After Communication Services, Consumer Staples was the next lowest sector for Numeric Transparency with 1.86%, followed by Consumer Discretionary with 1.91%.
Language Complexity
In Q3 2023, the S&P 500 constituents had a Language Complexity score of 12.36, up from Q1’s score of 12.34, showing the language in this quarter’s earnings call transcripts were slightly more complex and seen as less favorable. The individual S&P 500 sector with the least complex language this quarter (and now for the previous seven quarters in a row) was Industrials with 11.83. Some of the firms contributing to the more favorable sector score for Industrials were Paycom Software, Inc. (NYSE:PAYC) with 9.84, Parker-Hannifin Corporation (NYSE:PH) with 9.88, and The Boeing Company (NYSE:BA) with 9.98. After Industrials was Materials with 11.97 and Real Estate with 12.07. The S&P 500 sector with the highest score (least favourable) for Language Complexity was Utilities with 13.17, contributed by more complex language in transcripts from firms such as Alliant Energy Corporation (NasdaqGS:LNT) with 15.69, Dominion Energy, Inc. (NYSE:NEE) with 14.57, and Ameren Corporation (NasdaqGS:AEE) with 14.39. After Utilities, the sectors with the most complex language use were Communication Services with 12.81 and Health Care with 12.67.
Analyst Selectivity Ratio
For this quarter S&P 500 constituents had an Analyst Selectivity Ratio of 43.29%, not too different from previous quarters, meaning active Analysts covering a company have about the same opportunity to ask questions on earnings calls as before. Overall, the sectors with the highest Analyst Selectivity Ratio were Real Estate with a score of 52.90%, followed by Industrials with 49.84%, and Health Care with 46.33%. The sectors with the lowest ratios were Communication Services with 29.79%, Utilities with 31.31%, and Energy with 37.90%. Analyzing the variance between Analyst Selectivity Ratio quarter-over-quarter, Materials had the largest decrease going from 51.80% in Q2 to 46.16% in Q3. The sector with the biggest increase between quarters was Energy which increased from 30.65% in Q2 to 37.90% in Q3.
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About Transcript Sentiment Scores
Transcript Sentiment Scores use natural language processing to provide a way to look at earnings call transcripts in a quantitative fashion. S&P Capital IQ Pro provides net positivity, numeric transparency, language complexity, and analyst selectivity ratio metrics for transcripts at the total, speaker, and component level. S&P 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: 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.
- 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.
- 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.
- 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%.
Source: S&P Capital IQ Pro. Data as of September 18, 2023.
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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