Earnings Call Transcripts Analysis, Q4 '17 &

Full Year Review

March 30, 2018
Executive Summary

Hamilton Place Strategies (HPS) analyzed quarterly earnings call transcripts of

U.S. public companies to identify key issues influencing the business community's
decision making.
For this report, we analyzed earnings call transcripts from the fourth quarter of
fiscal year 2016 to the fourth quarter of fiscal year 2017.
Key Findings:
• The number of calls mentioning government or policy issues jumped from 19.8
percent of all Q3 '17 earnings calls to 67 percent of all Q4 '17 calls.
– The lion's share of this increase was the discussion of the tax reform package,
which was mentioned on 58 percent of total calls.
• S&P 500 companies mentioned investment most often in conjunction with tax
reform. Consumer Staples led the way, followed by the Healthcare sector.
– Of the 179 companies discussing investment as a result of tax reform, 157
mentioned capital expenditures.

1
Agenda

• Q4 And 2017 In Review: Government and Policy

• Q4: Tax Reform, S&P 500 Spotlight
• Methodology & Glossary
GOVERNMENT AND POLICY – OVERVIEW

Discussion Of Government And Policy Surged In Q4

2017, After A Modest Increase In Q3 2017
Percent Of 2017 Earnings Calls Mentioning Government Or Policy

The count of government and policy mentions

consists of any references to Congress, the
Administration, or a collection of major federal
policy issues, including tax reform, healthcare,
financial regulation, trade, infrastructure, and
immigration.

67%

23% 20%
16%

Q1 ’17 Q2 ’17 Q3 ’17 Q4 ’17

Source: Bloomberg Terminal, HPS 3

GOVERNMENT AND POLICY – SECTOR BREAKDOWN

In Q4 2017, Consumer Staples Broke Into The Top Five

Industries Mentioning Government And Policy
Percent Of Total Government And Policy Issue Mentions In The Top 5 Sectors

Q4 2017 Mentions No Mentions Q3 2017 Mentions No Mentions

Utilities 92% 8% 62 Utilities 48% 52% 75

Materials 73% 27% 113 Financials 30% 70% 428
Consumer
72% 28% 87 Real Estate 30% 70% 178
Staples
Industrials 71% 29% 345 Industrial 23% 77% 403
Financials 69% 31% 391 Materials 22% 78% 139

Q2 2017 Mentions No Mentions Q1 2017 Mentions No Mentions

Utilities 37% 63% 76 Utilities 48% 52% 77
Financials 23% 77% 428 Financials 35% 65% 433
Real Estate 21% 79% 178 Real Estate 33% 67% 182
Industrial 18% 82% 412 Industrial 28% 72% 431
Telecom 18% 82% 33 Healthcare 25% 75% 521

Source: Bloomberg Terminal, HPS 4

GOVERNMENT AND POLICY – OVERVIEW

Policy Mentions Eclipsed Government Mentions On

Earnings Calls In Q4 As Tax Reform Became A Reality
Percent Of Total Earnings Calls Mentions By Issue

Government Policy 62%

30%

16%
14% 14%
11% 10% 10%

Q1 ’17 Q2 ’17 Q3 ’17 Q4 ’17

Source: Bloomberg Terminal, HPS 5
GOVERNMENT AND POLICY – TRUMP AND WHITE HOUSE

Government Mentions Increased Significantly Q/Q,

Unlike Specific Mentions Of The Administration
Percent Of Total Earnings Calls Mentioning Government Versus Specifically The Administration

All Government Topics President Trump White House

1.3%
Q4 2017 30%
0.6%

0.9%
Q3 2017 10%
0.4%

0.7%
Q2 2017 11%
0.6%

2.0%
Q1 2017 16%
0.8%

4.9%
Q4 2016 31%
1.7%

0% 5% 10% 15% 20% 25% 30% 35% 0% 5% 10% 15% 20% 25% 30% 35%
6
GOVERNMENT AND POLICY– ADMINISTRATION AND CONGRESS

Post-Election, Discussions Of Congress Have

Outpaced Those Of The Administration
Government Mentions In Earnings Calls

Administration Congress
+93% Key Takeaways
700
• Mentions of the Trump
600 Administration did not
increase in Q4 '17, even
Number Of Earnings Calls

as mentions of Congress
500
did.

400 • This is likely due to the

focus on Congress' role in
28% developing and passing
300 tax reform legislation.

200 • This also shows that

10% 11% companies are crediting
8% 8% Congress more with
100 passing tax reform than
5% 4% 5%
the Trump Administration.
0
Q1 ’17 Q2 ’17 Q3 ’17 Q4 ’17

Source: Bloomberg Terminal, HPS 7

GOVERNMENT AND POLICY– SELECT TOPICS

The Q4 Spike In The Discussion Of Policy Topics Was

Mostly Driven By Tax Reform
Percent Of All Q4 '17 Calls Mentioning Select Topics

0 5 10 15 20 25 30 35 40 45 50 55 60 65 70

Tax Reform 58%

Congress 28%

Financial Regulation 7%

Administration 5%
Trade 5% In the first half of the year, company
Infrastructure 3 earnings calls mentioned Congress
and the Administration more often than
Healthcare 1% any one policy area, but tax reform
skyrocketed in Q4.
Immigration Reform 0.1%

8
Agenda

• Q4 And 2017 In Review: Government and Policy

• Q4: Tax Reform, S&P 500 Spotlight
• Methodology & Glossary
S&P 500 ANALYSIS – OVERVIEW

HPS Categorized The Way S&P 500 Companies

Discussed Tax Reform On Earnings Calls
HPS analyzed and coded the earnings call transcripts of every S&P 500 company
that mentioned tax reform during the Q4 2017 reporting period to create an in-
depth breakdown of their plans associated with tax reform.
Those categories include:
• Investment: Reinvesting directly back into the company or its employees, such
as CapEx, R&D, bonuses, or wage increases
• Returns To Shareholders: Returning capital to shareholders through stock
repurchases or dividend payments
• M&A Transactions: Acquiring another company
• Charitable Giving: Donations to foundations or community organizations
• Debt Reduction: Paying down debt holdings
When the analysis was conducted, 452 companies had reported their Q4 earnings.
Of those companies, 84 percent (419) explicitly mentioned tax reform during their
earnings call.
10
S&P 500 ANALYSIS – TOPIC BREAKDOWN

S&P 500 Companies Most Often Mentioned Investment

When Discussing Post-Tax Reform Plans
Number Of S&P 500 Calls Mentioning Topics

179

131

42
31 29

Investment Returns To M&A Transactions Charitable Giving Debt Reduction

Shareholders

Note: Categories are not mutually exclusive. 452 total S&P 500 earnings calls reported at time of analysis. 11
S&P 500 ANALYSIS – RETURNS TO SHAREHOLDERS & INVESTMENT

Majority Of Calls Discussed Both Returns To

Shareholders And Making Investments
Percent Of S&P 500 Calls Mentioning Returns
To Shareholders, Investment, Or Both

When discussing actions in

Investment response to tax reform:
39%
• 96 companies mentioned both
investment and return to
shareholders
• 83 companies mentioned
investment without discussing
returns to shareholders
Both 45%
• 35 companies mentioned
returns to shareholders without
discussing investment
Returns To
16%
Shareholders

Source: Bloomberg Terminal 12

S&P 500 ANALYSIS – INVESTMENT

Most Investment Mentions Related To Tax Reform

Focused On CapEx And Employee Benefits, Not Hiring
Number Of S&P 500 Calls Discussing Investment, By Type

157

Less than half of companies in

each sector mentioned capital
expenditures, with the sole
exception of Consumer Staples,
which had the majority focused on
investment.

55
50

CapEx Employee Bonuses Other Employee Benefits Hiring

And Wage Increases

Note: Categories are not mutually exclusive. 13

S&P 500 ANALYSIS – TOP SECTORS, INVESTMENT
Consumer Staples, Health Care, Financials Sectors Led
The Way In Terms Of Investment In Firm & Employees
All Investment
70%
The majority of Consumer Staples
companies mentioned investment due to tax
reform, more than any other sector in the
S&P 500
1 in 2
Runner-up: Half of the Health Care sector
mentioned investment due to tax reform
"We anticipate using a portion of the
corporate tax reform benefits for incremental
investment spending… in the areas of
technology modernization efforts, consumer
facing digital technologies and product
development capabilities." - Anthem Inc.
Employee Benefits
23%
Nearly a quarter of Financials companies
discussed employee wage increases or
bonuses, more than any other sector in the
S&P 500
11 firms
On an industry level, retail companies led on
mentions of general employee benefits - 11
out of 24, or 46 percent, discussed them
"First, the savings will translate to
enhanced compensation and benefits for
our most important asset, our employees.
Through increased funding in our annual
wage and bonus pools, paying for high
performance and rewarding results." - FIS 14
S&P 500 ANALYSIS – RETURNS TO SHAREHOLDERS BREAKDOWN

Dividends And Buybacks Were More Commonly

Mentioned Together Than Individually
Number Of S&P 500 Calls Mentioning Returns To Shareholders By Type

131

18

33

50

30

Total Returns To Only Buybacks Only Dividends Both Buybacks General Mentions*
Shareholders & Dividends

*Companies that mentioned returning tax reform windfall to shareholders without specifying how. 15
Agenda

• Q4 And 2017 In Review: Government and Policy

• Q4: Tax Reform, S&P 500 Spotlight
• Methodology & Glossary
METHODOLOGY

Methodology
Our analysis examined earnings call transcripts to determine the quantity
of calls discussing key topics and sub-topics. The transcripts we
examined roughly correspond to a given quarter. To conduct our analysis,
we:
• Reviewed roughly 2,500 earnings call transcripts of U.S. domiciled
companies per quarter.
– Earnings calls analyzed for Q4 2017 were held between January 1,
2017 – February 28, 2017 (2,473 total calls).
– Earnings calls analyzed for Q3 2017 were held between October 1,
2017 – November 26, 2017 (3,021 total calls).
– Earnings calls analyzed for Q2 2017 were held between July 1, 2017
– August 23, 2017 (3,117 total calls).
– Earnings calls analyzed for Q1 2017 were held between April 1, 2017
– May 31, 2017 (3,217 total calls).

17
Glossary

• Energy Sector: The Energy Sector comprises companies engaged in exploration & production,
refining & marketing, and storage & transportation of oil & gas and coal & consumable fuels. It also
includes companies that offer oil & gas equipment and services.
• Materials Sector: The Materials Sector includes companies that manufacture chemicals,
construction materials, glass, paper, forest products and related packaging products, and metals,
minerals and mining companies, including producers of steel.
• Industrials Sector: The Industrials Sector includes manufacturers and distributors of capital goods
such as aerospace & defense, building products, electrical equipment and machinery and
companies that offer construction & engineering services. It also includes providers of commercial &
professional services including printing, environmental and facilities services, office services &
supplies, security & alarm services, human resource & employment services, research & consulting
services. It also includes companies that provide transportation services.
• Consumer Discretionary Sector: The Consumer Discretionary Sector encompasses those
businesses that tend to be the most sensitive to economic cycles. Its manufacturing segment
includes automotive, household durable goods, leisure equipment and textiles & apparel. The
services segment includes hotels, restaurants and other leisure facilities, media production and
services, and consumer retailing and services.
• Consumer Staples Sector: The Consumer Staples Sector comprises companies whose
businesses are less sensitive to economic cycles. It includes manufacturers and distributors of food,
beverages and tobacco and producers of non-durable household goods and personal products. It
also includes food & drug retailing companies as well as hypermarkets and consumer super centers.

Source: MSCI GICS® Sector Classification 18

Glossary Cont.

• Health Care Sector: The Health Care Sector includes health care providers & services, companies
that manufacture and distribute health care equipment & supplies, and health care technology
companies. It also includes companies involved in the research, development, production and
marketing of pharmaceuticals and biotechnology products.
• Financials Sector: The Financials Sector contains companies involved in banking, thrifts & mortgage
finance, specialized finance, consumer finance, asset management and custody banks, investment
banking and brokerage and insurance. It also includes Financial Exchanges & Data and Mortgage
REITs.
• Information Technology Sector: The Information Technology Sector comprises companies that offer
software and information technology services, manufacturers and distributors of technology hardware
& equipment such as communications equipment, cellular phones, computers & peripherals, electronic
equipment and related instruments, and semiconductors.
• Telecommunication Services Sector: The Telecommunication Services Sector contains companies
that provide communications services primarily through a fixed-line, cellular or wireless, high
bandwidth and/or fiber optic cable network.
• Utilities Sector: The Utilities Sector comprises utility companies such as electric, gas and water
utilities. It also includes independent power producers & energy traders and companies that engage in
generation and distribution of electricity using renewable sources.
• Real Estate Sector: The Real Estate Sector contains companies engaged in real estate development
and operation. It also includes companies offering real estate related services and Equity Real Estate
Investment Trusts (REITs).

Source: MSCI GICS® Sector Classification 19