Earnings calls help the public understand a company’s financial performance in the context of its industry and the current financial climate.
What Are Earnings Calls and How Often Do They Occur?
Earnings calls are meetings held by publicly traded companies during which earnings and other financial results from the previous quarter (or year), among other things, are discussed with investors, analysts, and the media. In many cases, a company’s future plans, goals, and earnings forecasts are also covered.
Most publicly traded companies host earnings calls quarterly (once every three months), but different companies release earnings at different times, so these calls are scattered throughout each “earnings season.” Typically, these calls take the form of webcasts, although teleconferences used to be more common.
Why Are Earnings Calls Important?
An earnings call is an opportunity for a company not only to share its financial results for the past quarter but also to explain and contextualize them, as in many cases, a simple set of numbers cannot paint the full picture of a company’s health and position within its industry and the economy at large.
By listening to company executives and insiders discuss company performance in detail and in context, investors can make more informed decisions about whether a given company’s stock was, is, or will continue to be a good vehicle for their money.
What Information Is Discussed During an Earnings Call?
Most earnings calls follow a similar, three-part structure:
A safe harbor statement from the company’s investor relations officer (IRO)A discussion of the company’s financial results for the period in question by the CEO, CFO, and/or other executivesA question-and-answer session hosted by the IRO
1. Safe Harbor Statement
A safe harbor statement is essentially a disclaimer shared by a company’s investor relations officer that any forward-looking projections (like earnings estimates for future periods) may not be accurate because they are, of course, estimations. Company projections about future revenue and earnings are commonly referred to as guidance.
2. Discussion of Financial Results
Once the safe harbor statement is complete, the CEO, CFO, and/or other executives usually take over and begin to present information from the quarter’s financial statements. During this time, earnings and other financial results are presented in context, and the company’s achievements and setbacks are discussed. macroeconomic factors (e.g., inflation), industry trends, news, and current events may all come into play here, especially if they may have had an effect on the company’s financial performance.
Once backward-looking information has been covered, executives may discuss plans and goals for future periods. Earnings guidance and other financial estimates for future quarters and years may be shared as well.
3. Q & A Session
Once the discussion of financial results is complete, the company’s IRO usually takes over once again to initiate a question-and-answer session during which investors, analysts, and members of the media can submit questions to company management.
Since these calls are usually large and time is somewhat limited, some questions get answered, but many do not. Depending on the nature of each question, it may be handled by the CEO, the CFO, or another executive or department head. Certain questions may also be declined or deferred at the company’s discretion.
How Do Earnings Calls Affect Stock Prices?
When a company’s earnings for a quarter are released and discussed in an earnings call, investors and analysts compare them to estimates provided by the company in previous guidance. When a company meets or beats expectations, its stock price often goes up as a result. If a company’s earnings come in lower than expected, its stock price may take a hit as a result.
That being said, guidance (forward-looking earnings estimates) often have a more significant effect on stock price than past-quarter earnings, as stock-picking is a forward-thinking game. It’s not uncommon for a company to beat estimated earnings but still see its stock fall simply because its projected earnings are lower than what investors would like to see.
In some cases, other factors discussed during earnings calls can affect stock price. For instance, Netflix’s stock price dropped by 35% the day after its earnings call for Q1 2022 despite the fact that the company beat its earnings estimate by a significant margin. Why? The company announced that it had lost subscribers for the first time in over 10 years. This sent a wave of panic through its investors, causing a massive selloff.
In any case, news shared during an earnings call often causes volatility in the underlying stock. What direction the stock heads depends on the nature of the news. Some investors attempt to profit off of the volatility common around earnings calls by initiating options straddles such that they stand to make money regardless of the direction a stock moves, so long as it moves far enough.
How Can Investors Attend Companies’ Earnings Calls?
Earnings calls are public, so anyone can attend, regardless of whether they own stock in the company conducting the call. Most can be joined by dialing a telephone number listed on the company’s website. Webcast-style calls may be broadcast live on a company’s website or elsewhere.
Some digital brokerages (like Robinhood) allow users to join live earnings calls and submit questions in their apps or on their websites. And don’t worry—earnings calls are typically recorded, so if you miss one, you can replay it at your leisure.
Frequently Asked Questions (FAQ)
Below are answers to some of the most common questions investors have about earnings calls that were not already covered in the sections above.
Do All Publicly Traded Companies Have to Have Earnings Calls?
While quarterly earnings reports are legally mandated for all publicly traded companies, quarterly earnings calls are not, so some companies choose not to host them. Most major, publicly traded companies do choose to host them, as they are a good way to make investors feel informed and heard.
Who Speaks During Earnings Calls?
In almost every case, the CEO and/or CFO speak during the primary portion of an earnings call, but who speaks can vary by company, and additional executives may chime in during the Q&A section as needed.
How Long Are Earnings Calls?
There is no set time limit (or minimum) for earnings calls, but most last between 45 and 75 minutes.