Earnings calls and earnings reports recap a company’s quarter or fiscal year, giving investors critical information as to how a company is functioning and faring. Understanding what’s going on with stocks can be tricky for both new and seasoned investors. It’s not always clear where you can turn for accurate information that will help with investment decisions — that’s why earnings calls or reports may be helpful.
But an earnings report doesn’t tell the whole story. Therefore, companies will hold earnings calls to provide context and backstory behind the data in an earnings report to help investors make informed decisions.
What Is an Earnings Call?
An earnings call is a conference call between the management of a public company and any interested outside party — usually investors, analysts, and business reporters — to discuss the company’s financial results and future outlook. Earnings calls are generally held quarterly, in the form of a teleconference or webcast; anyone can listen to an earnings call.
The earnings call often comes on the heels of the release of an earnings report and covers a given reporting period, typically a fiscal quarter or fiscal year.
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The Securities and Exchange Commission (SEC) requires that public companies disclose certain financial information regularly and on an ongoing basis. Companies must file Form 10-Q quarterly reports during the first three fiscal quarters of the year. A 10-Q includes unaudited financial statements and provides the government and investors with a continuing account of the company’s financial position throughout the year.
For the fourth quarter of the year, a company will file a Form 10-K, an annual report that shares audited financial statements, a look at the company’s business overall, and financial conditions over the previous fiscal year. The financial information and metrics included on these reports, like earnings per share, is discussed during an earnings call.
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What Is the Importance of Earnings Calls?
An earnings call is important because it allows a company’s management to discuss pertinent financial information and a company’s outlook.
Publicly-traded companies are not required to hold earnings calls; they are only required to release the details of their financial performance in a Form 10-Q or Form 10-K. However, most public companies have quarterly conference calls to keep shareholders up to date with the latest financial developments and provide context beyond the earnings data.
Earnings calls are also important for investors, especially those practicing fundamental analysis. These calls help long-term investors decide whether or not to invest in or continue investing in a company. For short-term traders, earnings calls may be helpful to capitalize on short-term volatility in a stock’s price immediately following an earnings call.
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The Structure of an Earnings Call
A company will announce upcoming earnings calls several days or even several weeks before the event. The company will usually issue a press release containing dial-in or webcast access information for stakeholders interested in participating in the call.
Earnings calls are generally scheduled in the morning, before the stock market’s opening bell, or in the afternoon, following the end of the day’s trading. These calls occur shortly after an earnings report is made public.
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Safe Harbor Statement
When the call begins, a company representative will likely share a safe harbor statement, which is a disclaimer about some of the comments executives will make. Specifically, some statements might be “forward-looking” and discuss future revenue, margins, income, expenses, and overall business outlook. Because no company can predict the future, the SEC requires that each warns investors that forward-looking statements may differ from actual results and trends.
Overview of Financial Results
The earnings call is usually led by the CEO, CFO, or other senior executives. During the call, these executives will deliver prepared statements covering financial results and the company’s performance for the reporting period.
This section of the call allows company leaders to give a more in-depth look at the company from their own eyes beyond the data found in the earnings reports. Executives may discuss market trends or even unpredictable factors that could influence how the company moves forward. Management will also likely share risks and their plans to take them on.
Question and Answer Session
At the end of the call, there may be a chance for investors and analysts to ask questions about the financial results the company presents. However, not everyone will get to ask a question. The company’s management may answer these questions, or they may decline or defer answering until they have the correct information to make an accurate response.
Preparing for an Earnings Call as a Shareholder
Before listening in on an earnings call, it may help to research the company and its earnings history and listen to previous earnings calls. Here’s additional information to know how to listen to an earnings call.
Where to Find Earnings Call Info?
Companies will send out a press release announcing when they will give an earnings call. Investors can also check the investor relations section of a company’s website for scheduled earnings calls. Additionally, some financial news websites may keep calendars of expected upcoming earnings reports and calls investors can check to stay current.
Many companies will post audio from the call on their website, making it available to investors and analysts for a few weeks. Companies also frequently offer transcripts of the call to read. This is especially useful for investors who may have missed an earnings call.
Much of the information discussed in conference calls, including Forms 10-Q and 10-K, are part of the public record and searchable on the SEC’s website. To find a company’s public filings, the SEC has a searchable Electronic Data Gathering, Analysis, and Retrieval system (EDGAR).
How Long is an Earnings Call?
An earnings call usually lasts for less than an hour. However, there are no requirements for how long an earnings call should be.
What to Listen For
Investors should treat earnings calls as valuable information on a company but know that it doesn’t typically paint the complete picture of its potential performance.
Some key things investors should listen for in an earnings call are:
• How the company performed compared to analysts’ expectations
• What the company attributes its financial performance to
• Any changes in guidance for the future
• Any significant challenges or headwinds the company is facing
• Questions from analysts and how management responds to them
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Additionally, it may help to listen to the tone of the company’s executives when they are talking about the company’s performance. It isn’t quantifiable, but learning to pick up on the tone of management’s description of the company’s financials and the answers to analysts’ questions can help investors better understand the outlook for the company.
The Takeaway
Earnings calls provide investors with valuable insights into a company’s financial performance and outlook. These calls, paired with quarterly earnings reports, give investors a thorough understanding of the company, which helps with making investment decisions.
While earnings calls and earnings reports can be helpful to investors, keep in mind that they don’t tell the whole story. You’ll want to do your due diligence and further research to better inform your investment decisions, too.
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