With this earnings season mostly in the rearview mirror, CNBC’s Jim Cramer on Thursday cut through common C-suite jargon, an attempt to help investors make sense of management commentary.
In particular, the “Mad Money” host focused on four words or phrases that have been thrown around a lot recently:
“We’ve had so many convoluted explanations for disappointing quarters that it’s almost impossible to tell what’s really going on,” Cramer said, before going on to explain how he interprets each of those terms whenever he hears them.
In a “Mad Money” interview Wednesday, Salesforce co-CEO Marc Benioff told Cramer the enterprise software giant’s customers were being “more measured” in their spending.
Here is Cramer’s translation:
“When you hear Benioff saying the customers are more measured, it means that executives who’d normally agree to take a Salesforce product with alacrity now have to run it up to the CEO, the CFO or maybe even the board of directors,” he said. “It’s amazing to me that even Salesforce, which is so integral to so many organizations, has started running into measured situations, but businesses have gotten more conservative about spending money here — they don’t want to add too many new costs going into a slowdown. … In short, measured means that it’s harder to win business.”
This one is similar to the first term, but Cramer said he typically views it more harshly. Usually, it’s offered up in the context of “elongated sales cycles.” Hearing management use the term should be cause for caution, Cramer said.
“These companies talk about elongated sales cycles, and you might think that means it’s taking a lot longer to close on a deal. But when you read between the lines, ‘elongated’ is the term they roll out when they can’t close the deal at all.
“When you hear the term, you have to recognize that the next quarter will most likely be a disappointment because the elongated deals simply aren’t going to be coming through.”
3. Excess inventory
Many retailers have been talking about excess inventory in recent months. This term might be a little more self-explanatory on the surface: The companies have too much stuff. However, Cramer said the key for investors when they hear it is to go deeper and figure out what happens to the excess inventory.
“What you need to know is whether the excess inventory is being disposed of. For example, Target got rid of all its excess inventory immediately. That was really smart. It allows them to open up their floor space to merchandise that people actually want,” Cramer said. “The other retailers that mentioned excess inventory that didn’t take action still have it. Well, they’ve cut the price to unload it. That kind of dribble out won’t allow them to reclaim key space in their stores to put in better merchandise.”
4. Clearing events
Investors should be intrigued whenever they hear a particular development — like a company preannouncing earnings, for example — be called a “clearing event,” Cramer said.
“That means the company’s set up a new lower, albeit disappointing, benchmark that it thinks it can beat next quarter. The term should inspire you to pull the trigger after the quarter has been reported, certainly not before, because no business ever invokes the term ‘clearing’ — and no investors think of the term ‘clearing’ — if it hasn’t already really reset expectations on the conference call. It’s just too dangerous to do so,” he said.
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