Quarterly earnings calls, a routine practice for most U.S. corporations, can be a rich source of insight and ideas for investors. Here's what to know.
Investors stare down an information deluge every day: stock ticker crawls, charts and graphs, highs and lows, financial network talking heads, and so on.
Quarterly earnings calls are different. The old-school earnings call can be a fertile source of human-generated detail and a respite from the endless digital streams of numbers. How are your investor listening skills? Quarterly earnings calls are a good way to find out.
Although earnings calls are a routine practice for most U.S. corporations, what’s said during the calls is not always routine or expected by the market. Sometimes an executive’s comments on business conditions or profit expectations can move the company’s share price.
For investors, earnings calls offer opportunities to be “in the room” with company leadership and take a look ahead. “Listen to earnings calls and you can often hear right then and there about forward earnings and revenue guidance straight from the CFO’s mouth,” said Alex Coffey, senior trading strategist at TD Ameritrade. “By listening to earnings calls, investors can gain valuable information that isn’t always obvious in a company’s financial reports.”
Why listen to quarterly earnings calls, and what should you listen for? Here are a few key points.
Most of the 3,000-plus U.S.-based, publicly traded companies listed on major exchanges hold conference calls shortly after releasing their quarterly earnings report. According to the National Investor Relations Institute, more than 90% of companies represented by the group’s members conduct earnings calls.
Quarterly earnings calls (most are actually webcasts; to get access, you may need to register through the company’s website) are usually held an hour or two before the U.S. stock market opens or after the close (though sometimes during regular trading hours). Calls last 30 minutes to an hour and are typically archived on the company’s website, so they’re easy to access later if you don’t have time to tune in live. Transcripts of the calls are frequently available free online, though you typically have to wait a day or two.
To access earnings calls, log in to your account at tdameritrade.com. Select Research & Ideas > Markets > Calendar > Earnings, then select a date and scroll/swipe down for a list of companies reporting earnings on that date. Select the speaker icon to listen to a conference call.
Before the call starts, pull up a one-minute chart of the company stock (more on that later). After the call begins, you’ll be in “listen-only” mode. (Typically, only industry analysts are allowed to ask questions during the Q&A session; earnings call transcripts can be found through some third-party services.)
Also, because earnings calls almost universally occur shortly after the actual earnings data is released (sometimes companies release data the previous night and hold a call in the morning, but this is rare), it’s good to have the company’s earnings press release in front of you and at least be somewhat familiar with key numbers like earnings, revenue, gross margin, and any forward guidance.
A typical earnings call starts with a “safe harbor” statement from the company’s management, which alerts listeners that the discussion of financial results may include forward-looking statements, meaning that estimates of financial results based on the forward-looking statements may substantially differ from the actual results.
During the early part of the call, the chief financial officer (CFO), the head of investor relations, or another company official will often recite directly from the just-announced results. They may talk about “core operating performance” and other complex financial terminology. The chief executive officer (CEO) may offer a few remarks about the latest results, maybe congratulating employees for their outstanding “execution” in a good quarter.
The first 15 to 30 minutes of the earnings call may not seem like earth-shaking “news,” but investors should pay close attention. What you hear could help you make a well-informed, long-term investing decision—or help you avoid a bad one.
The company’s previous quarterly earnings reports are in the books, and the results are likely already factored into its stock price (or will be soon). But by carefully listening to what executives say during the call, investors can gain insight into what the future may hold for the company and its stock.
Companies often use earnings calls to update their own revenue and per-share profit projections for the current quarter or the full year, which might say something about their big-picture view of business and economic conditions. Shaving a few pennies from the full-year per-share earnings estimate may not seem like much, but there are real business reasons for that.
“I’ve seen companies report what appears to be good news—sales or earnings doubling, for example,” Coffey said. But after the markets open, “the shares drop like a rock because the company’s forward guidance was weak, or company leaders talked about greater uncertainty or more competitors or said that they anticipate a more challenging environment.”
This is what happened to Amazon (AMZN) when it reported Q1 earnings in April 2023. The company’s numbers looked solid in the press release and shares jumped double-digits ahead of the opening bell that day. Then the earnings call began, and everything changed.
It all hinged on a comment made during the call by AMZN’s CFO Brian Olsavsky. He told investors to get ready for much slower growth ahead in the company’s important Amazon Web Services (AWS) cloud platform.
“As expected, customers continue to evaluate ways to optimize their cloud spending in response to these tough economic conditions in the first quarter,” Olsavsky said during the call. “We are seeing these optimizations continue into the second quarter with April revenue growth rates about 500 basis points lower than what we saw in Q1.”
There was nothing in the quarterly earnings report earlier that day to prepare investors for anything as dramatic as a 500-basis-point slowdown in cloud growth, and the stock dropped like that proverbial rock. A surge in shares quickly became a retreat, and investors who’d traded only on the earnings release without waiting for the call might’ve gotten burned.
It wasn’t the first time this happened, either. Back in 2018, a Caterpillar (CAT) executive said on the company’s Q1 call that its results represented the “high water mark” for the year, sending shares south.
The first half or so of the earnings call is usually followed by a Q&A period, which is when things can also get interesting. Sometimes the CEO will stray from the script and speak candidly or off the cuff about something with implications for the business or the stock price—say, buyout speculation or an activist investor who’s targeted the company.
What’s the “tone” of the call? Do executives seem less optimistic than they were a few months ago? Have sales slowed? Is a new product launch struggling? Have new competitors emerged? Have global economic trends adversely affected the company? For example, during the pandemic, supply chain disruptions affected sales, manufacturing, and distribution of the products of many companies, and comments from company executives during conference calls helped put sales and earnings numbers in the context of the macroeconomic environment—for better or worse.
This is where the afore-mentioned one-minute chart comes in handy. Many short-term traders also listen to earnings calls, so following an earnings call “blow by blow” via an intraday chart can give you an idea of what market professionals consider key issues for a company. Executive comments on profit outlooks or other matters can move the stock price, even if just for a few seconds (see figure 1).
Usually, in the Q&A sessions, only the analysts at big Wall Street banks or investment shops can ask questions. These analysts often follow several other companies in a specific industry, which means they track the company whose call you’re listening to as well as the company’s top competitors (be sure to check for any analyst rating changes on the company’s stock afterward).
Listen for particularly pointed questions, or the same questions asked more than once. If the CEO hesitates or regurgitates something from the press release, that’s worth noting. “If analysts come back with repeated questions about something, that subject may be an area of concern,” Coffey noted.
He also suggested keeping eyes and ears open for comments on other earnings-related matters like write-offs (usually a one-time hit to earnings). “Writing off” a business unit that was recently sold or divested “isn’t necessarily bad,” he explained. “But look at things like that in more detail. The shares may go up [on news of a write-off] because the company sold off a less-profitable, slower-growing business or because they’re focusing more on core areas. It could help them in the future.”
For more on what to listen for in an earnings call and on the risks of trading during earnings announcements, watch the video below.
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