How to Get Useful Information From an Earnings Call

Management writes the release and the prepared remarks. The analysts write the questions. Everything useful you get from an earnings call comes from the distance between those two, so the preparation is mostly about knowing the first half well enough before the call that you can spend the hour listening to the second.

Read the release and slides first

The release usually goes out before the call. Slides often go up on the investor relations site at the same time. Read both first.

Get the headline numbers out of the way: revenue, earnings per share on a reported and an adjusted basis, margins, cash flow, and any guidance. Check the reconciliation table that links the adjusted figures back to the reported ones. The full release is filed with the SEC as an exhibit to an 8-K, and how to find 10-Q and 8-K filings shows where it sits on EDGAR.

Start with the outlook. Read the outlook first argues that guidance often moves a stock more than the quarter just ended.

A narrower range around the same midpoint says management is more confident in its number. It doesn’t raise the number. Note both, and note whether the release says anything about why.

Prepared remarks, then Q&A

The call opens with a safe harbor statement about forward-looking information. Then come the prepared remarks from the chief executive and the chief financial officer. These are scripted, reviewed, and usually close to the release in substance. Skim them, or read them in the transcript at double speed.

The Q&A is different. Analysts ask what they need to update their models, and management answers live. This is where analysts push on the soft spots. Give it most of your attention.

What to listen for

Guidance changes, first. Did management raise, cut, narrow or reaffirm? Did it add or drop a metric it guides on? Dropping a metric is information too.

Then the repeated question. When two or three analysts ask about the same thing in different words, the first answer didn’t satisfy them. The topic matters to the people who model the company for a living, and the repetition tells you management hasn’t put it to rest.

Then the topic management avoids. Some answers go long without addressing the question, or turn to a prepared talking point, or push the matter to “a future call.” Write down what the question was. A flat refusal to give a number is fine, and so is a short answer, while a long answer that sounds responsive and contains nothing is worth writing down almost word for word, because it tends to mark the topic management least wants to discuss.

Then the wording. Management teams tend to reuse phrases from quarter to quarter, and a change in how they describe demand, pricing, or a problem segment can tell you more than the numbers do, because the numbers describe the quarter that ended while the wording hints at the one that’s already under way. “Stable” becoming “stabilizing” is a change. So is a word that used to appear and no longer does.

Use transcripts and compare to last quarter

Transcripts make the comparison practical. Many investor relations sites post a replay. Transcripts follow.

Put this quarter’s transcript next to last quarter’s. Search both for the terms that matter to the business, such as a product name, “pricing,” “backlog,” or a region, and compare how the language moved. Check what management said it would do last quarter and whether this call reports on it, since promises that quietly vanish from the script deserve more of your attention than the new ones that replace them.

Analysts do this too. Their estimate revisions after the call show how they read it, and how to read analyst ratings covers where to see those revisions.

Write three notes

Keep them short.

• What changed: guidance, a metric, a tone, a strategy, a number that moved further than expected.
• What was confirmed: things you expected that management said again, with enough detail that you’d notice if they changed next time.
• What was dodged: questions that got long answers with no content, or topics that nobody on the company’s side brought up.

Three notes per call, kept across quarters, give you a record of what management said, what it did, and where the gaps are. That record is the part of the work nobody else can hand you.

What goes wrong

• Listening to the call before reading the release.
• Spending the hour on the prepared remarks.
• Reacting to tone without checking what was said last quarter.
• Taking a reaffirmed range as good news without checking whether the company has already used up most of the year and simply left the range where it was because changing it would draw more questions than leaving it alone.