Bloomberg News

Google Blames R.R. Donnelley for Premature Earnings Release

October 18, 2012

Google Blames R.R. Donnelley for Premature Earnings Release

The 9 percent drop in shares of Google Inc., owner of the largest Web-search engine, wiped more than $22 billion from its market capitalization in minutes. Photographer: Tomohiro Ohsumi/Bloomberg

Google Inc. (GOOG:US) blamed financial printing company R.R. Donnelley & Sons Co. (RRD:US) for the premature release of results that showed a profit shortfall, caused shares to plunge and made Chief Executive Officer Larry Page the brunt of jokes shared widely on Twitter Inc.

The company’s third-quarter results were filed with regulators and made available to news wires with a placeholder for a quote from Page at about 12:30 p.m. in New York. R.R. Donnelley had filed a draft of the document without authorization, Google later said on its blog.

The timing raised concerns about Google’s ability to release sensitive financial data through proper channels, said David Larcker, a corporate-governance professor at the Stanford Graduate School of Business. Before trading was halted, a 9 percent drop in Google shares wiped more than $22 billion from its market capitalization in minutes.

“It is highly unusual for this thing to be cut loose ahead of time,” Larcker said. “This is a big deal. The markets hinge on appropriate disclosure, following the process. You worry about some people getting the news earlier than others.”

The snafu upstaged another Google event, the release of a Chromebook computer, hitting during a press conference in San Francisco and prompting several reporters to rush out to cover the results. Google requested the halt in trading (GOOG:US) of its shares as it made final touches to the results, which showed profit and sales that fell short of analysts’ projections.

R.R. Donnelley Investigates

Profit excluding some items was $9.03 a share, the Mountain View, California-based company said. Excluding sales passed to partner sites, revenue was $11.3 billion. Analysts on average had estimated profit of $10.65 a share on sales of $11.8 billion.

Google shares fell 8 percent to $695 at the close in New York.

R.R. Donnelley fell (RRD:US)less than 1 percent to $10.76 at the close after earlier erasing as much as 6.5 percent immediately after Google’s statement was released. R.R. Donnelley said it’s investigating the matter.

“We are fully engaged in an investigation to determine how this event took place and are pursuing our first obligation -- which is to serve our valued customer,” Chicago-based R.R. Donnelley said in a statement.

Google’s filing included the phrase “PENDING LARRY QUOTE,” just above a summary of results. The mishap quickly turned into a commonly discussed and joked-about theme on Twitter.

Microsoft’s Numbers

Google isn’t the only company to have its results released before planned. Microsoft Corp. (MSFT:US)’s earnings were released more than an hour before schedule in January 2011, after Selerity Inc., a New Jersey market-information company, used software it developed to obtain Microsoft’s press release from a public area of the software maker’s site.

Embarrassing as the incident was, it may not give Google cause to sue Donnelley, said Stuart Grant, a Wilmington, Delaware-based lawyer who represents investors in securities cases.

“Of course it’s possible to sue,” Grant said in an interview. “But I’m not sure if a company has to put out information at any specific time.”

Still, the timing left investors without the added explanation that comes in the conference call that typically occurs soon after a release hits newswires, said Kerry Rice, an analyst at Needham & Co.

Lacking Context

“There’s not a lot of context around the earnings right now, so people make the conclusion one way or the other and it may not be right,” he said in an interview. “The uncertainty breeds a sense of fear and people automatically sell.”

Public companies can file their documents with the Securities and Exchange Commission directly through a website called EdgarLink Online. They have to request access codes to use the site, including a Central Index Key, or CIK, from the agency. CIKs are used on the SEC’s computer systems to identify corporations and individuals who have filed disclosure documents.

Instead of filing themselves, some corporations use agents to submit documents on their behalf -- in part because the process can be complicated. The SEC requires public companies to submit documents created with HTML software, which has more stringent technical requirements than other formats, such as Microsoft’s Word software or Adobe Systems Inc. (ADBE:US)’s PDF.

Documents that are tied to specific transactions, such as a stock or bond offering, are often submitted to filing agents without much notice. In contrast, filing agents typically receive advance notice on documents that are more predictable, including Form 8-Ks that are filed in tandem with earnings releases. A Form 8-K must be submitted within four days of the event that is being disclosed in the filing, such as an earnings release.

To contact the reporters on this story: Danielle Kucera in San Francisco at dkucera6@bloomberg.net; Miles Weiss in Washington at mweiss@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net


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Companies Mentioned

  • GOOG
    (Google Inc)
    • $541.83 USD
    • 1.46
    • 0.27%
  • RRD
    (RR Donnelley & Sons Co)
    • $16.84 USD
    • -0.02
    • -0.12%
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