Quarterly earnings calls, a routine practice for most U.S. corporations, can be a rich source of insight and ideas for investors.
The conference calls held after the release of quarterly financial results, a routine practice for most U.S. corporations, can be a rich source of insight and ideas for investors. Don’t just “phone it in.” Listen up for several key things.
At first blush, the practice might seem like a relic from a bygone, analog era before text messaging and Twitter posts—people gathering in a room somewhere and talking to other people somewhere else over the phone.
Despite its retro elements, the earnings conference call remains a fundamental platform for companies to communicate with investors, customers, and the media. And when it comes to doing the spadework on potential investing opportunities, these calls can provide valuable nuggets you’re unlikely to find anywhere else.
Most of the more than 3,000 U.S.-based, publicly traded companies listed on major exchanges hold conference calls shortly after reporting quarterly earnings. And there’s a lot out there—for January and February, for example, more than 2,500 archived calls are available through theTD Ameritrade Trade Architect® platform (see figure 1).
FIGURE 1: MAKING THE CALL. Check the Trade Architect® calendar function to see how many calls (red rectangles above) are slated for a particular day, as well as other corporate events. For illustrative purposes only.
To be blunt, the typical earnings call won’t produce anything to inspire a scene in The Wolf of Wall Street. You’ll hear company executives drone on about “core operating performance” and other bland corporate-speak, and you’ll hear Wall Street analysts, some eager to suck up to CEOs, offer gratuitous verbal backslaps (“Great quarter, guys!”). It probably won’t set your day on fire.
Nevertheless, pay attention. What you hear could tip the scales toward a good, long-term investing decision—or help you avoid a bad one. Got your ears on? Here are a few things to listen for:
Aside from the financial results themselves, this is arguably the most important detail likely to emerge on earnings day. Remember, the previous quarter is water over the dam. It’s history, and presumably already baked into the stock price (or soon will be). But companies often update their own revenue and per-share profit projections for the current quarter or the full year, and that will tell you a lot about their view of business conditions.
Trimming, say, 5 cents from the full-year per-share earnings estimate may not seem like much, but there are real-world reasons for that. Perhaps executives aren’t as optimistic as they were a few months ago. Have sales slowed? Is that new product launch not going so well? Is the competition gaining ground? If questions like this aren’t posed and answered during the call, you should be asking them yourself before you throw your hard-earned money at the shares of this company.
The first 15 to 30 minutes of the call are usually devoted to the chief financial officer, or other company official, reading from the just-announced results more or less verbatim. The CEO will often chime in. That’s followed by a question-and-answer period, which is when things can 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. Any incendiary comments will send the company’s PR folks into a full spin cycle, but potentially provide you with some honest insight to help inform your strategy.
To access earnings calls, launch Trade Architect.
Go to the Ideas tab > Go to the Events tab > Click on the Conference Call button for a list of calls on each day of the month.
Earnings Q&A sessions are usually open only to analysts at big Wall Street banks or investment shops who follow specific industries (reporters and everyone else are in “listen-only” mode). These analysts are smart, well-educated people with a firm grasp of the financial nuts and bolts of public companies, and will often ask tough questions that make CEOs squirm. Can you elaborate on how you arrived at this earnings forecast, Mr./Ms. CEO? If the exec hesitates, or just regurgitates something from the press release, that’s worth noting.
Another tip: Pull up a 1-minute chart of the stock while you listen (see figure 2). Executive comments on profit outlooks and other business matters (e.g., mergers and acquisitions) can move the stock price, even if just for a few seconds. Traders are listening to these calls too, and following along blow-by-blow via an intraday chart may give you an idea of what the marketplace views as key issues for this company.
FIGURE 2: THE BLOW-BY-BLOW. The intraday 1-minute charts available on Trade Architect® offer a real-time way to track any stock price reaction to what’s said on earning calls. To follow a stock price when the call happens outside regular trading hours, click the “Ext Hrs” button. For illustrative purposes only.
The words and numbers on an earnings statement will tell you a lot about a company, but likely not the whole story. Earnings calls are one of the few opportunities investors have throughout the year for any sort of personal contact with the real people running corporations, big and small.
True, you can’t see their faces. But you can hear their voices. What impression do you get? Does the CEO sound confident and in command? Or uncertain, vague, or irritated (particularly after getting the same type of question several times)? Listen for tone of voice and choice of words. Nuance matters.
Although most calls tend to be by-the-book and well-orchestrated by the companies, there are occasionally moments of spontaneity or unintentional “forgot the mute button” comedy. A few CEOs have well-earned reputations for shooting from the hip, and a quick web search reveals recent clips of a potty-mouthed exec dropping an “f-bomb” for all the world to enjoy.
Then there are the new-technology companies where the CEOs tend to be younger and more likely to wear a hoodie to the call than a shirt and tie. In short, you never know what might happen.
Most earnings calls are available through Trade Architect®. Here are a few basics:
• Most “calls” are actually webcasts, sometimes with slides illustrating sales performance and other metrics; you’ll need to register through the company website.
• You’ll be in “listen-only” mode (typically, only industry analysts are allowed to ask questions during the Q&A session).
• Calls 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 archived on the company’s website.
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