The earnings conference calls are a method for companies to communicate information to all parties interested, including individual and institutional investors and analysts from both sides. These calls enable companies to emphasize their achievements during times of prosperity and soothe fears during difficult ones. The most well-known moment for companies to hold the calls is following the announcement of financial results. Typically, this happens after the end of every quarter. These are also known as quarterly earnings conference calls. While news announcements, research reports, and the most recent earnings are excellent data sources, experienced investors must also research conferences held by companies.

Understanding Earnings Conference Calls

In a conference call, analysts and investors can call on the phone or stream online management's comments about the financial results of the most recent quarter. Most public companies host calls annually for four hours, typically within a month of the end of a quarter.

In the past, the calls were accessible to Wall Street analysts and institutional investors. Currently, because of the ease of accessing calls online, most public companies permit investors to watch the call or hear an audio recording of the call. This is usually accessible the day after the call occurs.

How an Earnings Conference Call Works

The conference calls typically follow the same pattern. The call begins with the host or conference operator introducing the management team. The call usually ends with the vice president of investor relations or another person from the legal team describing the conduct of the conference and stating that the call may include "future-looking statements" or predictions regarding the future direction of the business, which are, of course, uncertain. In acknowledging the future-oriented statements, the company is reminding the investors not to believe that the events discussed on the conference call will occur for certain.

The second important item is the raw financial information, including estimated or reported revenues and earnings. Management typically provides the main financial information, including the bottom line performance of the business, and supplements the information with a commentary. Most of the information provided in this segment of the conference call is accessible in press announcements.

Participants on conference calls usually comprise the CEO, chair, CFO, and other executives, depending on the company's performance and the topics under discussion. These executives give an overview of the important issues that affected the performance of the business in the past quarter. The discussions often include what is expected from the company for the upcoming quarters.

The conference call usually concludes with a question and answer time, during which analysts and investors can logically pose questions about the company. Most analysts and investors agree that it's probably the most crucial part of the conference call as analysts can ask management questions on any aspect of the company's performance that wasn't evident or requires further explanation.

As an investor who is an individual probably won't be able to ask personal questions. Be aware that thousands of people can participate in conference calls, and management can't respond to everyone. Your query will likely be addressed if you pay attention to the analyst's questions.

What to Listen for on Earnings Conference Calls

While conference calls are live and are recorded, the talk from the CFO and the CEO at the start of the conference call is mostly a recap of company press announcements. Remember that financial statements provide an overview of the company's performance during the previous year. Analysis and forecasts on conference calls will show you what the company is performing at present and what the company's management expects their future performance in the near future.

Significantly different performance levels from prior estimates or significant adjustments to estimates for the future are crucial factors to consider, and it's a great suggestion to listen to management's comments on the issues. Certain experts and analysts believe that by paying attention to the tone of voice and how information is conveyed, additional information is gleaned regarding the company's performance and future.

Being attentive to all analysts' queries will give you a great insight into any worries that money managers from the industry have regarding the business. Take note of the responses of management. Analysts' questions are not rehearsed or submitted before the conference call. So you have the chance to determine how truthfully and confidently the top management team can defend the company's results under stress. There are numerous instances of management in a company fumbling the question on the conference call, penalizing the stock in the days following.