Earnings Calls 101 - The Basics
Your main source for direct corporate updates
Earnings calls are a critical part of fundamental analysis because regular people like us hear directly from a company’s leadership team. From reporting financials, updating operational progress , and providing “guidance” for the upcoming future, earnings calls tend to have major impact on a stock’s price.
What makes earning calls even better is the fact that these usually are live calls, where anyone can ask a question or make a comment. Anything can happen on a live call!
In our multi-part Earnings Call series, The Chart Readers will provide everything need to understand and properly trade upcoming earnings report. From how to access the call, to understanding the information and market’s reaction, earnings call will become a key you circle on your calendar moving forward.
The Basics
Every public company is required to present financials, along with any significant corporate updates, during a live teleconference every three months.
The exact date, time, and access-code to hear the teleconference will be available on the company’s investor relations page, along with several options to hear a reply if you are unable to attend live.
Though the format of each Earnings Call can vary, the flow tends to be: starting with the Safe Harbor Statement (explained below), corporate updates from the President or CEO, financial review lead by the CFO, maybe another Executive providing a key update, before getting closing remarks from he President or CEO before opening up the call for live questions.
Usually questions are asked by professionals working at major firms; however, anyone has the opportunity to speak to the Executive team and ask an unscripted question. The right question can uncover invaluable information - that is such a powerful thing!
Lastly, some smaller companies many not hold a live earnings call. Rather those small companies provide prepared financials, operational progress, and some guidance in their quarterly reports only.
Safe Harbor Statement
The Safe Harbor Statement will become a routine formality after you have heard a handful of Earnings Calls. Though the actual verbiage may vary, the Safe Harbor Statement is how the company protects itself during the call.
Consider the Safe Harbor Statement as a fancy corporate Fifth Amendment.
By starting with the Safe Harbor Statement, the company basically refuses to provide updates after the call unless they are legally obligated, imply some claims about the future that are based on opinions and might change or never happen, and other cover-you-@$$ phrases.
That said, a good company would never make wild claims that would never happen and simply reply on the Safe Harbor Statement to make everything ok. Stock price does not care about the Safe Harbor Statement. Only the humans listening to the call.
After the Call
Regardless if you are listening to your first ever Earnings Call or you are a seasoned fundamental analysist, it is wise to replay the call once available. There is a lot of information and numbers regurgitated in a relatively short amount of time - that really is too much for most to fully comprehend during the live call. Even if you actually understood every aspect during the live call, you may be able to find an extra nugget of information after a replay or two.
From there, do not hesitate to reach out to Investor Relations if there any other questions/concerns. Maybe someone who manages the Investor Relations communications accidently provides too much information, and you again an edge? It never hurts to ask more!
Lastly, see how the media and market are reacting to the outcome - if you are a day or swing trader, this may be the first thing after the call rather than last. None the less, putting your personal opinions aside, it is important to see what reporters are saying as well as how the stock price moved based on the call.
