Understanding the purpose of analyst conference calls

Analyst conference calls aren’t a chance for the CEO to trade recipes and golf stories with Wall Street analysts. While some of these calls sometimes seem oddly chummy, they are supposed to serve several primary purposes including:

• Discuss and summarize the company’s performance during the quarter. Typically the CEO and chief financial officer will read key parts of the earnings press release and point out items of note.

• Field questions from Wall Street analysts. All the analysts who cover the company are usually permitted to ask questions about the quarter’s results. Many of the analysts also try to extract more forward-looking information from the CEO, to get an idea of what the next quarter’s results might look like.

  Some companies are trying to give regular investors greater ability to ask questions during the analyst conference calls. Morningstar, a market research firm, for instance, allows any investor to email questions to management. The questions are then collected and answered by the management team each month. It’s a good idea to see whether a company you’re analyzing will allow you to pose questions.

• Provide future guidance. One of the most widely watched aspects of the analyst conference call is whether the company will indicate what it expects to happen in the immediate future. This tip-off to what the company thinks is likely for future financial results is called guidance.

The dimming guiding light of guidance

Some investors are initially surprised to hear some companies provide earnings guidance. It might seem somewhat strange to think CEOs would be willing to make promises to investors about the future, when the future is far from certain. You might think that, if a CEO says the next quarter will be strong, that you can quickly make a profit by jumping into the stock.

But guidance isn’t as mysterious as it might seem. For one thing, many companies have a pretty good idea of what their book of business, or expected deals with customers, will look like months in advance. That’s why when CEOs give guidance, they might not be taking as much of a leap as you’d think. Some CEOs, too, might give guidance they think will be easy to beat. That way, even if the quarter was just as expected, investors might view the financial results as better-than-expected and buy the stock.

Just because a company issues positive earnings guidance and says the future is bright doesn’t mean investors have a license to cash in. Many times, by boosting investors’ expectations, if the company either misses the guidance or sometimes doesn’t top even the lofty expectations, the stock price can suffer.

Some companies, seeing the often perverse way some investors use earnings guidance, are not giving it out anymore. Companies including Berkshire Hathaway, Alphabet (formerly known as Google), Coke, Citigroup, and Ford have, at one point or another in recent years, stopped giving earnings guidance to investors. It’s somewhat of a trend in recent years for companies to not give guidance. Most companies’ management, though, do give investors some indication of what they think the future might look like.

If a company suddenly stops giving earnings guidance, there’s reason to pay attention. Generally, investors assume companies stop giving earnings guidance when they foresee a rough future. For that reason, typically, a company’s stock price will suffer around the time it stops giving guidance, according to an academic research report called “Is Silence Golden? An Empirical Analysis of Firms that Stop Giving Quarterly Earnings Guidance.” Also, when a company stops giving guidance, the growth forecasts from analysts for the company may be all over the map and could be less reliable. You will want to keep in mind whether or not a company provides guidance when using analysts’ forecasts for earnings, as described in Chapter 17.

Unique things to look for in analyst conference calls

During a conference call, you’ll want to make sure the management team adequately steps through and describes the just-completed quarter’s results. That’s really the most basic reason for the call. But as a fundamental analyst, some of the other things you should watch for in the analyst conference call include the:

• Tone of the executives: Be on the lookout for CEOs and top management who act like it’s their company instead of the investors’. One warning sign a management team doesn’t understand it’s beholden to the public is when executives act agitated when answering questions from analysts or investors.

  The classic case study of what you don’t want to hear happen in an analyst conference call occurred while Enron management was discussing the company’s quarterly results in April 2001. Prior to the discovery of the massive accounting scam, one analyst pressed executive Jeff Skilling for reasons why the company continued to provide scant financial details in the earnings press release. Skilling fired back angrily, directing profanity toward the analyst. That’s not a good sign.

• Lack of availability: While nearly all companies conduct an analyst conference call, they are not required to do so by regulators. Regulators only require the timely filing of regulatory documents, including the financial statement. It’s up to the company to decide whether or not to hold an analyst conference call.

  However, when a company doesn’t provide a conference call with analysts, that lack of dialogue is somewhat problematic for the fundamental analyst. Some analysts also grouse when companies only provide highly scripted and prerecorded conference calls.

• Completeness of answers: If you start noticing the management team is constantly deflecting questions, refusing to answer queries or providing very canned answers, your fundamental analysis radar should start flashing. Company management should be forthcoming in providing information to shareholders.

How to access the analyst conference calls

Now that you’ve read about the analyst conference calls and discovered how they can tell you things you can’t pick up from the financial statements, you might wonder how to access them.

Investors are increasingly demanding to be included in the analyst conference calls. And fairly recent regulations, especially Regulation Fair Disclosure (Regulation FD for short), put into effect in 2000 (and described in more detail in the nearby sidebar, “The fundamental investor’s friend: Reg FD”), prohibit companies from only sharing material information with Wall Street insiders and analysts.

Most companies make their analyst conference calls available to all shareholders in a variety of ways including:

• Dial-in numbers: Some companies still provide a toll-free telephone number for anyone to use to listen in on the analyst conference call. Typically, though, unless you’re an analyst, you are not able to ask questions. The phone numbers are available on the bottom of the earnings press release or on the company’s website.

• Web streams of calls: A growing number of companies allow investors to listen to conference calls using their computers or mobile devices. Typically, you’ll find the links to the online audio broadcasts by visiting the investor relations section of companies’ websites. Some companies, including General Electric, are also offering streaming video of the calls with investors. Can’t listen to the call while it’s going on? No problem. Some companies also let you download or stream previous analyst conference calls.

  If you can’t find a link to a company’s conference call on its website, don’t assume it’s not going to happen. Yahoo! Finance provides the dates of many upcoming analyst conference calls, too. Log onto http://finance.yahoo.com, enter the company’s ticker symbol into the blank at the top of the screen and click the name of the company when it appears. Next, click on the Profile link on the top center of the screen. On the right side, look for the estimated date of the next earnings call under the Upcoming Events header.

• Transcripts and FAQ: Another popular way for companies to share their analyst conference calls with investors is by offering a typed transcript when they’re over. These transcripts are typically posted on a company’s website in the investors relations area shortly after the call is completed.

Companies will often conduct analyst conference calls before the stock market opens at 9:30 a.m. Eastern or after it closes at 4 p.m. Eastern. This is done intentionally to give companies a chance to fully explain their results before investors rush to conclusions and either buy or sell the stock.

Be highly skeptical when a company decides to release its earnings after the market closes on Friday. It’s highly unusual do to this, because it leaves investors all weekend unable to buy or sell the stock during normal stock market hours. Generally, companies with very bad news try to slip it through late Friday and hope, I guess, that investors won’t notice.

If you’re not sure whether what’s being discussed on the analyst conference call is good or bad, always check after-hours trading. Most financial websites will show you how the stock is behaving in special electronic trading that occurs after the stock market exchanges close at 4 p.m. But don’t think you need to start trading after hours yourself. Because the amount of stock being traded after hours is much lighter than during the regular hours, you might end up paying more for a stock you’re buying or getting less for a stock you’re selling than you would if you’d waited.

Bolstering your fundamental analysis with media reports

As you’ve probably noticed reading this book, there’s not really one source of information that gives fundamental analysts everything they need to do their work. Getting a complete understanding of a company and its stock’s valuation requires digging through many documents, looking for trends, discrepancies, and other anomalies. Media reports, available on financial websites, in newspapers, magazines and on TV and radio can help flesh out your fundamental analysis of a company. Some of the things media reports can assist you with include:

• Breaking news: Because financial wire services, publications, and websites are vigorously competing with each other, there are hordes of reporters covering companies and looking to get any bit of information first. Sometimes, these pieces of breaking news can have a significant impact on a company and its stock price.

• Interpretation: Because many reporters are either assigned to a specific company or trained to study financial statements, they may notice something about a company announcement that you missed. Many media outlets also have access to professional-level fundamental analysis tools, so they might be able to put numbers into context using data you might not have.

  Media reports, too, might make it easier for you to quickly assess whether a company’s quarter was considered to be better or worse than expected. Reporters who follow a company generally know ahead of time what analysts were forecasting for the company.

• Deeper understanding of companies and the people who run them: Some executives, hoping to get their messages out, might sit down with a reporter and more clearly spell out their companies’ objectives or goals. Executive profiles might also give you more of an insight into the personalities of the people running the company you’ve invested in.

  Some publications routinely provide profiles of company executives. It’s important to recognize when these profiles are just CEO adulation, and when they’re analysis.

• Industry insight: Just reading the financial statements doesn’t really give you the buzz about a company or its products. Financial media, dedicated to specific industries, might give you a good early indication on how a company’s new product, for instance, might be perceived. Some large companies, too, might have a website that’s dedicated just to them. Reading these, and comments from other readers, might give you things to look for when analyzing a company.

What fundamental analysts look for in the media

Given the barrage of information available to fundamental analysts, it might be overwhelming to think that you need to read every financial website, newspaper, and magazine in addition to studying a company’s regulatory filings.

But savvy fundamental analysts know how to put the media to work for them. Rather than reading everything, much of which is duplicative, fundamental analysts use the media to zero in on developments such as:

• New products: One of the most difficult factors for fundamental analysts to deal with is a company’s new products. Without a financial track record to guide them, fundamental analysts may find it tough to figure out which new products are potential blockbusters and which ones are money-sucking duds. Media reports can help by offering comments from industry experts who can put the new products into perspective.
• Bad news: One thing that amazes me as a financial reporter is just how deft company executives are at spinning bad news. I’ve interviewed executives of companies at death’s door, and the CEOs try to tell you how everything is fine. Good financial journalism, though, will help you look past the corporate spin and get a good grip on when a company’s woes are alarming.
• Availability (or overavailability): Ever notice some companies’ CEOs are constantly in the press while others’ never are? As a fundamental analyst, it’s important to monitor this kind of thing even through there’s no way to qualify it. When you notice CEOs seem to be on TV a couple times a week, you really need to wonder why they feel so inclined to be constantly telling their story. But at the same time, you might wonder if an executive is being overly secretive, too.

When to be skeptical of executives’ claims in the media

Just because an executive makes a claim in the media, don’t assume it’s true. Sometimes the media outlet, or reporter, isn’t qualified or prepared to call out or correct an executive who makes a glowing statement about a product.

Bold claims made by CEOs should never be taken as absolute trust. The Securities and Exchange Commission in December 2015 charged the CEO of Oxford City Football Club for falsely portraying “himself as one of the most powerful and influential CEOs in the history of Wall Street when he’s really a penny stock fraudster mixing lies and verbal threats to line his own pocket with money from unsuspecting investors,” according to the SEC’s press release. The SEC charged the CEO with misleading investors into thinking the company was a “thriving” collection of sports teams. But the reality was very different, the SEC says. Oxford City Football Club was actually “losing millions of dollars each year and turning zero profit from its two lower-division soccer teams in the U.K.,” the SEC’s release says. Fundamentals trump talk.

Fundamental analysts should be especially cautious of companies that seem to be in the business of issuing press releases. Some companies, especially those that trade on the largely unregulated Pink Sheets market, attempt to stoke interest in their stocks by constantly putting out promising-sounding press releases. If trading is light in the stock, meaning there aren’t many buyers and sellers, a stock’s price can be fairly easily manipulated by seemingly positive press releases.

If you’re afraid of missing when a company or its executives appear in the media, you can set up electronic alerts or interests so you will be emailed or otherwise flagged with notifications. Most web search engines provide this service. Bing, for instance, provides an interest manager that will notify you on your computer or phone about developments at companies you’re interested in. Go to Bing.com, click Sign In, sign into your account, and then click the bell icon on the upper-right corner of the screen. Select the Add More option at the bottom of the list that pops up. Under the Finance heading, you can enter names of companies you’re following.

Keep in mind you must be signed into Bing to see the bell icon and use this feature. You don’t want someone else seeing your hot stock, do you?

Google lets you create alerts based on keywords like the name of a company or executive you want to track. You’ll be emailed when any news breaks that mention those keywords. If you’re interested in learning more on how to efficiently scan online news for information about a company, you can get some pointers in my book Investing Online For Dummies, 10th Edition (Wiley). How’s that for a shameless plug?

What to expect during a company’s annual meeting

The annual shareholder meeting is kind of like a corporate version of show-and-tell. Nearly all these meetings are held in large conference halls or auditoriums, and not on the companies’ premises. The companies often use these meetings as a chance to showcase all the products they offer. You can find out when and where a company’s shareholder meeting is held usually in the proxy statement, which is discussed at length in Chapter 9.

While companies generally don’t conduct their annual meetings at their headquarters, you might be a little concerned if a company seems to go out of its way to hold it somewhere it knows might be difficult to visit. Do they not want to meet their shareholders?

Annual shareholder meetings often follow a script like this:

• Flashy introduction: Many meetings kick off with a flashy slideshow or video presentation showcasing just how cool the company’s products are. There’s very little value to these shamelessly promotional presentations.

• Presentations from company management: The CEO and perhaps chief financial officer and chief operation officer might give a speech outlining their goals for the company in the year ahead.

  There’s rarely any new information released at the annual shareholder meetings. Anything of material interest has already been disclosed in the proxy statement or the 10-K, which is explored in Chapter 12.

• Shareholder question-and-answer period: Some companies allow shareholders to stand up and ask the management team questions. Other companies require questions to be submitted ahead of time and will only be posed to management if they are selected. In some cases, investors who have put proposals for a vote on the proxy are permitted to give a presentation of their views. This portion of the meeting can often be the most entertaining as some investors ask some off the wall things.

Some pretty wacky things can happen at annual meetings. Warren Buffett played a big role — literally — in the 2015 Coca-Cola annual meeting. The famed investor — and long-time Coke shareholder — sang a Coca-Cola jingle accompanied with his ukulele playing. He also spilled the beans on why he first started playing the Hawaiian stringed instrument: To impress a female student he had a crush on during college. Who said annual meetings aren’t any fun?

Putting the “fun” in fundamental analysis

Typically lacking substantive information, the annual shareholders meetings are generally designed to make investors get a warm fuzzy feeling about being investors. Generally speaking, that’s the kind of feeling you, as a fundamental analyst, don’t want to have.

It’s dangerous to get so attached to a stock that you lose your objectivity. Falling in love with a stock, as it’s called, may cause you to stop asking the tough questions when owning a stock. Remember, stocks don’t love you back.

A few companies are especially famous for their annual shareholder meetings. Shareholder meetings of Warren Buffett’s Berkshire Hathaway are especially legendary. Scores of Berkshire investors descend on Omaha (the CHI Health Center was the location of the 2022 meeting) to try to get close to the Oracle of Omaha.

The Berkshire Hathaway annual meeting is such a big deal it’s almost like a weekend getaway. At the meeting in 2022, events included a Pack Your Own Box experience where attendees filled their own boxes of See’s Candies, a Berkshire Picnic, and a 5K running race. There are also plenty of opportunities to buy and try products sold by Berkshire companies ranging from See’s Candies to Borsheim’s Fine Jewelry. Buffett usually refers to the event as the “Woodstock for Capitalists.”

Don’t feel like you need to attend an annual shareholders’ meeting or you’ll be out of the loop. You can vote on all the important items by mailing in your proxy statement form or by voting online. Also, most companies provide the presentations from the shareholders’ meeting on their website after the event.