Earnings Calls 201 - Preparing
Do You Understand the Words Coming Out of My Mouth?
As you learned in Earnings Call 101, it is very easy for anyone to listen live to a corporate earnings call. The skill; however, comes in understanding the information provided (section 201) as well as knowing what to do with the information (section 301).
Earnings Calls vary in complexities usually based on the company’s industry. A pharmaceutical company trying to cure a rare brain disease will be far more complex than a candy company reporting on sales of a few products and general expenses. There are strategies for Earnings Call inside your comfort zone (Section 202) as well as more complex calls outside your range of knowledge (Section 203) - covered shortly.
However, were section 101 ended with After the Call, section 201 will start Before the Call.
Before the Call
Fully analyzing the information from an Earnings Call does not start by dialing into the teleconference on time. Rather, a good fundamental trader will need to put in some work upfront to get the most from this important call.
These Before the Call suggestions will be covered more in-depth during Earnings Calls 301:
Previous Earnings Calls
The company’s last earnings call was approximately three months before the upcoming call. Even the top fundamental traders in the world will have trouble remembering key facts from a call that was 12 weeks old - especially if those traders are listening to additional Earnings Call during those weeks.
Go back and review what the Executive team said and promised last time. Did they keep their promises? Was any important guidance achieved or missed?
It goes without saying that if time allows, going back and listening to the previous two or three Earnings Calls - depending what is archived company’s Investor Relations page - to get a better picture of what was promised during the year.
Research Market Expectations
Many times people ask, Why did such a good earnings call make the stock price go down? Well, market expectations is a significant reason why. What entails a broad statement like “market expectations” will be covered in Earnings Calls 301; however, some basic expectations include:
Earnings per Share (ESP)
Year Over Year (YoY) growth or reduction in key financial metrics
Guidance of the coming quarter(s) or year(s)
Specified plans to: Split, Reverse Split or Buy Back stock, as well as any updates to Dividend payouts or schedules
Corporate and Operational Milestone/Guidance progress
You are Ready to Dial-In!
After a refresher of the previous Executive promises as well as an understanding what the Market is expecting out of the upcoming Earnings Call, it is time to listen live! The next critical part will confirming if the Earnings Call will be inside your comfort zone (Section 202) or a more complex calls outside your range of knowledge (Section 203).
The very last thing to note before listening to the call is: Do Not Get Frustrated!!
By no means are you expected to understand everything immediately. Listening to the replay of the call was a suggestion in Section 101, and is worth repeating. Absorb as much as possible and be confident that any gaps in information can be filled by listening again, reviewing third party analysis, or reaching out the Investor Relations team directly.
