Many investors use quantitative analysis to evaluate investment opportunities—but the numbers never tell the whole story.
Earnings calls provide valuable context and backstory behind the numbers to help analysts improve their predictions and investors make informed decisions. The company may also issue or update its guidance and explain where the company is headed in the future.
Let’s take a look at what earnings calls are, how they work, and how to use them to better understand the numbers and make more informed decisions.
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Why Earnings Calls Matter
Earnings calls are teleconferences or webcasts where public companies discuss their latest financial results, provide future guidance, and answer any questions.
While they aren’t required by any specific regulations, many public companies hold quarterly conference calls as an investor relations best practice that’s designed to keep shareholders up to date with the latest developments. The National Investor Relations Institute found that 92% of their member companies conduct regular earnings calls.
Press releases and SEC filings may contain a lot of earnings data, ranging from quarterly revenue to earnings per share guidance, but they lack context and narratives behind the data. For example, a company might report a rise in revenue, but it might not be obvious what caused the increase. It could be a single short-term blip from a one-off sale or the start of a long-term trend.
Earnings calls help answer these important questions and provide clarity.
Mechanics of an Earnings Call
Most earnings calls are announced in advance via a press release that contains the dial-in or webcast access information, and they’re scheduled before the opening bell or after the market close shortly after the earnings numbers are made public.
Earnings calls tend to follow a familiar agenda:
- The call usually begins with an Investor Relations Officer (IRO) reading a safe harbor statement to limit liability if actual results differ from the discussion.
- The Chief Executive Officer (CEO) and/or Chief Financial Officer (CFO) discuss operational and financial results in prepared statements, including earnings guidance.
- The management team opens the floor to a question and answer session from investors, analysts, and any other call participants who have a concern.
Investors or analysts who were unable to attend the earnings call may have access to transcripts through websites like SeekingAlpha.com. For example, you can access Fastenal’s earnings call transcript for Q2 of 2019 here) or may listen to recordings through corporate websites (e.g., like here for Fastenal), phone-based replays or investor relations tools. These may be available for several days to several months after, depending on the company and platform.
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SEC Rules Surrounding Earnings Calls
The Securities and Exchange Commission (SEC) subjects conference calls to many of the same rules as other corporate communications.
The SEC requires advance notice of an earnings call under Regulation FD, including the date, time, subject matter, and access information. For quarterly earnings calls, the SEC notes that ‘several days’ notice is appropriate. A transcript or replay of the conference should also be made available to ensure that everyone can access the information.
Once an initial earnings press release and 8-K SEC filing are made public, companies have 48 hours to hold an earnings call without an obligation to separately report the call to the SEC. Earnings calls that occur outside of the window or those involving non-GAAP discussions require their own 8-K SEC filings, which is why many companies hold the calls shortly after the earnings release.
How Investors & Analysts Use Them
Investors and analysts use earnings calls to help them better understand industry trends, company-specific developments, and financial data to make better decisions or predictions.
For example, an analyst may ask questions about a sudden dip in revenue to see if it’s a temporary occurrence or part of a bigger trend. The answers to these questions could influence their revenue forecasts, financial models, and, in turn, their recommendation and price target.
Short-term traders may use earnings calls as an opportunity to capitalize on volatility. For instance, earnings calls that occur during market hours can cause significant volatility, which traders can use for scalping profits from volatile gut reactions to statements.
The Bottom Line
Earnings calls provide invaluable context into earnings data, enabling investors and analysts to better understand the financial results. While they’re not required, many large companies hold earnings calls to discuss results and answer any questions.
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