The quarterly earnings release and subsequent conference call for investors are important information-gathering tools. The conference call is open to all investors, and provides insights into the written earnings release. Companies, from the end of the quarter until the public release of earnings, are in a "quiet period" where they are unable to disclose any important financial or operational information on the company that had not been previously publicly disclosed. The actual public release of earnings via a press release ends the quiet period and allows investors to gather insights into the just-finished quarterly operations and financial results, as well as gain information into the company's strategic direction and potential financial impact.

Quarterly Earnings Release
The quarterly earnings release provides information related to the business environment, operations and financial results from the previous quarter - all important information necessary to evaluate and confirm an investment thesis. The release may provide forward guidance as to what the company expects financial results to be in the coming quarter. However, the release focuses primarily on past results. The earnings conference call reiterates the information in the quarterly press release, but by contrast, it usually has more detailed discussion on future prospects for the company, providing an opportunity to confirm or amend an investment thesis.

Investors' Responsibilities Prior to the Conference Call
Prior to any conference call, the earnings release is posted in a public forum, typically on a company's website, as well as to the news media. The release is scheduled to be posted with adequate time prior to a conference call to allow investors to read and analyze the information. Investors should always read the earnings release and highlight important statements and financial results. Investors should compare the release to the prior quarter's release and the prior year for the same quarter's release.

It is important to compare the current release's outcome to the prior year's release to gain an understanding of seasonal or cyclical patterns and improvement over prior quarters to access the success or failure of the results. Without assessing in this context, the results are less meaningful. Similarly, the results need to be in the context of the current operating environment. When reviewing in these contexts, investors are able to formulate questions that should be addressed during the call. (Learn about some of the tricks companies employ in earnings releases in Five Tricks Companies Use During Earnings Season.)

Conference Call Format
The conference call has many participants. The CEO, CFO and investor relations are typical participants, but often some senior operations employees participate as well. Although varying from company to company, calls follow a similar format. The CEO usually begins with a discussion on "high level" operating results and provides some commentary on the industry and operating environment. The CFO provides more detail and insight into the results, clarifying and providing specifics on line items in the financial statements. Then additional comments, including guidance for the upcoming quarter, are divulged.

Investor relations, a function at most large public companies, usually introduces the executive team members participating on the call, but more importantly is available after the call or at other times to answer questions investors may have about the earnings release or any other company related inquiries.

Q&A Period
The Q&A period is the part of the call where information related to strategy and vision, forward or upcoming industry and operating environment, as well as company prospects, such as new products, are revealed. Investors have a chance to ask all the questions they did not feel were adequately discussed during the prepared remarks from the company.

What to Look for
The call is one of very few touch-points that investors have with a company's management team, and it allows investors to assess the quality of the management team and determine if the company is following its plan and meeting its strategic goals at regular time intervals. Often it is not only what the management says but what it omits or declines to discuss that provide a basis for investing. Investors need to pay special attention to how the management team explains the reasoning for meeting, exceeding or missing targets as well as check for discrepancies from previous discussions.

Additionally, Wall Street analysts that follow the company tend to have specific predictions or expectations that they require a company to meet. These expectations are generally set based on previous guidance and conversations with the management. Results that vary from these expectations and the management team's commentary on the sources of variance often move the stock up or down and thus need to be fully understood. (For more on analyst expectations, be sure to read Analyst Forecasts Spell Disaster For Some Stocks.)

Earnings conference calls provide a detailed understanding of a company's operations for a given period of time. Although the information is backward-looking, it is part of an investment mosaic that investors should create and update to ensure investments are sound. Reviewing the earnings release, setting expectations based on forward looking guidance and other prospective commentary, and assessing the quality of the management team are outcomes investors gain from this quarterly event. Together with other investment tools, the earnings conference call aids in the creation of an investment thesis.

For further reading, check out The Flow Of Company Information and Poker Face: Corporate Tells And How To Spot Them.

Related Articles
  1. Investing

    Is it Time to “Buy” Inflation?

    Based on recent data from the Treasury-Inflation Protected Securities (TIPS) market, it would seem that most investors aren’t worried about inflation.
  2. Fundamental Analysis

    The Basics Of Corporate Structure

    CEOs, CFOs, presidents and vice presidents: learn how to tell the difference.
  3. Stock Analysis

    The Biggest Risks of Investing in Netflix Stock

    Examine the current state of Netflix Inc., and learn about three of the major fundamental risks that the company is currently facing.
  4. Stock Analysis

    What Seagate Gains by Acquiring Dot Hill Systems

    Examine the Seagate acquisition of Dot Hill Systems, and learn what Seagate is looking to gain by acquiring Dot Hill's software technology.
  5. Personal Finance

    Top Factors Preventing Workers From Being Promoted

    Many employees blame office politics when they fail to get promoted, but they may be sabotaging their own careers with these behaviors.
  6. Professionals

    Career Advice: Investment Banking Vs. Corporate Finance

    Read an in-depth review and comparison of a career in investment banking and a career in corporate finance, with advice about which one to choose.
  7. Investing

    A Look at 6 Leading Female Value Investors

    In an industry still largely predominated by men, we look at 6 leading female value investors working today.
  8. Term

    What Is Financial Performance?

    Financial performance measures a firm’s ability to generate profits through the use of its assets.
  9. Stock Analysis

    The Biggest Risks of Investing in FireEye Stock

    Examine the current state of FireEye, Inc., and learn about some of the biggest risks of investing in this cybersecurity company's stock.
  10. Stock Analysis

    The Biggest Risks of Investing in Gilead Stock

    Examine the current position of Gilead Sciences, Inc., and learn the major risks for investors considering buying Gilead stock.
  1. Can a company's working capital turnover ratio be negative?

    A company's working capital turnover ratio can be negative when a company's current liabilities exceed its current assets. ... Read Full Answer >>
  2. Does working capital measure liquidity?

    Working capital is a commonly used metric, not only for a company’s liquidity but also for its operational efficiency and ... Read Full Answer >>
  3. How do I read and analyze an income statement?

    The income statement, also known as the profit and loss (P&L) statement, is the financial statement that depicts the ... Read Full Answer >>
  4. Can working capital be too high?

    A company's working capital ratio can be too high in the sense that an excessively high ratio is generally considered an ... Read Full Answer >>
  5. How do I use discounted cash flow (DCF) to value stock?

    Discounted cash flow (DCF) analysis can be a very helpful tool for analysts and investors in equity valuation. It provides ... Read Full Answer >>
  6. What is the formula for calculating compound annual growth rate (CAGR) in Excel?

    The compound annual growth rate, or CAGR for short, measures the return on an investment over a certain period of time. Below ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Ex Works (EXW)

    An international trade term requiring the seller to make goods ready for pickup at his or her own place of business. All ...
  2. Letter of Intent - LOI

    A document outlining the terms of an agreement before it is finalized. LOIs are usually not legally binding in their entirety. ...
  3. Purchasing Power

    The value of a currency expressed in terms of the amount of goods or services that one unit of money can buy. Purchasing ...
  4. Real Estate Investment Trust - REIT

    A REIT is a type of security that invests in real estate through property or mortgages and often trades on major exchanges ...
  5. Section 1231 Property

    A tax term relating to depreciable business property that has been held for over a year. Section 1231 property includes buildings, ...
  6. Term Deposit

    A deposit held at a financial institution that has a fixed term, and guarantees return of principal.
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!