Editor's note: This story was originally written going into 2023 and has been added to our CNBC Investing Club white paper vault. This is the kind of in-depth reporting on the markets that Club members can expect. A company's quarterly post-earnings conference call can often provide investors with a treasure-trove of information not found in the official results — and it's an essential homework item for any investor in individual stocks. A company's management team uses the call — a link is generally provided on the earnings release or available on the investor relations page of a company's website — to provide more color and detail around the reported results, particularly with regards to the firm's outlook. The team then fields specific questions from analysts and reporters that can further elucidate the headline figures. But it's crucial for individual investors to filter out any PR fluff and actively listen for comments relevant to the firm's stock. PREPARING FOR THE CALL Preparation for an earnings call can start days before a company publishes its financial results. For starters, it helps to know how the management team in question structures its calls by reviewing those of prior quarters. After researching how a call will be structured, investors should review topics that will likely be discussed, as well as formulate some questions they hope to have answered. The investor relations page is a key resource that includes recent press releases, quarterly reports and a calendar of events past and future. Preview research notes from bank analysts are also a useful jumping-off point. Analysts often use their research reports to highlight the most popular questions they've received from investors. Once the call kicks off, investors should take detailed notes, including the time stamp of comments, in order to reference the full transcript more easily once it's made available. Oftentimes, these calls can be filled with fluff and self-congratulations — sometimes well-deserved, other times less so. But the key is to listen for information that could ultimately impact a bank's financial model and, therefore, earnings projections. An earnings call essentially covers three time periods: The three months reflected in the reported results; the period between the final day of the quarter and the date the results were reported; and the future period from the time call wraps through the final day of the current quarter and/or fiscal year. COMMENTARY ON THE RESULTS Almost all calls begin with a discussion of the reported results. These are some key themes to listen out for: 1 | SALES DYNAMICS/MIX This highlights the current appetite of customers, while also providing insight into profit margins. Did the company have to offer discounts? Are consumers more interested in higher or lower-margin products? During Club holding Procter & Gamble's (PG) fiscal third-quarter results , the management team discussed the impact the sales mix had on sales, gross margins and overall profitability during the reported period. "On the gross margin and sales connection here from a mix perspective, the effect that you're seeing here is product mix. So, consumers when they come into our P & G portfolio, tend to trade up into higher-value items...that's a positive impact from a mix perspective on the top line," management noted. The team then added: "Those higher unit sales items also have higher unit profit, but the gross margin in percentage is slightly lower for some of them." 2 | INDUSTRY METRICS AND KEY PERFORMANCE INDICATORS (KPIs) Different industries have their own important and unique measurements that provide insight into key drivers of financial performance. For example, same-store sales in retail is going to translate into sales performance; the medical ratio in healthcare or the overhead ratio at a bank both speak to how efficiently the businesses are being operated; realized prices in the energy space tell us if management is hedging appropriately; depletions in the alcohol industry tell us if product is moving off retail shelves; and data on active users provide insight into the health of social media platforms and technology companies. Importantly, these metrics also provide for an apples-to-apples way of measuring different businesses in the same industry. During Club holding TJX Companies' (TJX) last earnings call, management discussed same-store sales, also known as "comps." The team said: "Our overall comp store sales increased 3% at the high end of our plan. This comp sales increase was driven by customer traffic...our overall apparel business, including accessories, continued its momentum with comp growth up [by] mid-single digits." 3 | SUPPLY CHAIN, CUSTOMER/END-MARKET DEMAND, AND INVENTORY As we saw during the Covid-19 pandemic, companies struggled with supply-chain disruptions. But as the global economy reopened, demand surged faster than supply chain issues could be resolved, contributing to a multi-decade high bout of inflation. Then, when supply chains started to improve, inflation had already begun to dampen demand for goods and companies. That left many companies, particularly those in the consumer-electronics space, with an inventory glut. The situation showed that supply chain efficiency — an ability to gauge demand and hold the right inventory in the right quantity — is key to operating efficiently and maximizing financial performance. Any commentary that provides insight into this flow of goods can be indicative of not only the performance in the reported quarter but the near-term outlook, as well. In its most recently reported quarter , Club holding Advanced Micro Devices' (AMD) management team spent a good deal of time discussing its efforts to flush out excess inventory: "Revenue declined 65% year over-year, to $739 million, as we shipped significantly below consumption to reduce downstream inventory...we believe the first quarter was a bottom for our Client processor business." Management added: "And certainly, our goal has been to normalize the inventory in the supply chain so that shipments would be closer to consumption. We expect that will happen in the second half of the year." 4 | INTRA-QUARTER DYNAMICS While the earnings release provides a snapshot on annual and sequential growth rates, commentary on the call can often provide a more in-depth look at what happened each month. Did the quarter start out strong and weaken as it progressed? Did it start weak and strengthen as time passed? Or was performance largely consistent throughout the period? Commentary on what the team saw month-to-month can certainly help us better understand how much weight to give the reported results when looking forward. For example, during Club holding Constellation Brands' (STZ) most recently reported quarter , the alcoholic beverage firm's management team addressed depletion rates: "As anticipated, depletion performance accelerated throughout the quarter, resulting in a 5.5% increase for the period, an acceleration that has continued into June." That told us that the 5.5% result comes from a weak start and strong finish, which continued into the following quarter. The reported quarter ended May 31 and the call was hosted on June 30, a full month after the quarter ended. So, as we look ahead from that call — knowing that May was stronger than February — and that the acceleration continued into June, we could deduce that the depletion run-rate was somewhere above that 5.5% level for at least the first third of the current quarter. END OF THE QUARTER THROUGH THE RELEASE The second part of the conference call generally focuses on what management has been seeing since the quarter ended. Depending on when the company reports, this commentary may provide insight into anywhere from the first two weeks to the first two months of the current quarter. Club holding Wynn Resorts (WYNN) , for example, reported results for the fourth quarter of 2022 on February 8, over two months into the subsequent quarter — meaning the company fairly clear idea of how the first quarter of 2023 was shaping up by the time they reported for the final quarter of last year. Notably for the casino operator, which maintains significant operations in China's special administrative region of Macao, the Chinese New Year holiday fell in late January. But with the earnings release and attendant conference call not taking place until early February, management was able to comment on developments in China as the country lifted strict pandemic measures and moved to reopen its economy after nearly three years. By listening into the call, an investor could see that the reported results did not tell the full story around Wynn's business in China. "In the casino, mass table drop reached 95% of 2019 Chinese New Year levels, with strong play across the spectrum from premium mass to core mass. In direct VIP, turnover was 40% above pre-COVID Chinese New Year levels, and importantly, we estimate that our hold normalized GGR [gross gaming revenue] market share during the month of January was consistent with 2019 levels," management noted during the conference call. "Overall, during the Chinese New Year period, we delivered our strongest EBITDA [earnings before interest taxes, depreciation, and amortization] performance since the onset of the pandemic, approximately $4 million of normalized EBITDA per day," management added. This sort of commentary around developments since the end of the reported period is crucial for markets, which are always more forward looking. As with the reported results, any comments on supply chains and customer dynamics could prove relevant to the direction of the stock. Additionally, at this point in the call, investors should listen for any changes made since the reported results were finalized, including organic initiatives like growth and cost savings priorities, or inorganic growth actions such as mergers and acquisitions. Finally, investors should listen for management's higher level, general thoughts on the operating environment. That can help shareholders not only think more clearly about the company in question, but also the industry and economy more broadly. Club holding Halliburton (HAL) is uniquely positioned to provide such insight, given that its business is directly tied to the supply/ demand dynamics of one of the world's most important commodities — oil. During its first quarter 2023 earnings call, Halliburton CEO Jeff Miller, noted that "everything I see today validates the strength and duration of this multiyear upcycle. The world requires more energy from all sources, including oil and gas, driven by population growth and economic development. Multiple years of structural underinvestment in oil-and-gas supply can only be addressed by strong activity over the next several years." OUTLOOK The last section of an earnings conference call largely focuses on the future. Here we may receive information on the rest of the current quarter, or possibly even the year, depending on how much guidance management provides. Guidance tends to come in one of two forms. It can be quantitative, by which management provides actual targets for sales, earnings, and/or industry metrics. Or it can be or more qualitative, whereby the forecast is more high level in nature, with commentary on the state of the industry, supply chain and customer/end-market dynamics. Club holding Microsoft's (MSFT) guidance from its most recent earnings report — which the company only provides on its earnings call — is a perfect example of explicit quantitative guidance: "In Productivity and Business Processes, we expect revenue to grow between 10% and 12% in constant currency, or $17.9 billion to $18.2 billion," management said. Importantly, the team provided exact numbers we can compare to estimates. Club holding Apple (AAPL) , on the other hand, has been offering up more qualitative commentary on sales since the start of the pandemic. During its most recent earnings call , management said, "We expect our June quarter year-over-year revenue performance to be similar to the March quarter, assuming that the macroeconomic outlook does not worsen from what we are projecting today for the current quarter." This kind of commentary leaves us with a bit more guess work to determine if the outlook is positive, negative, or in line with what Wall Street has been modeling. In addition to the guidance itself, investors should listen for the assumption that went into generating that guidance. That then allows investors to subsequently adjust expectations as fresh economic data rolls in in the time period before the company's next financial update. The Club's industrial gas giant, Linde (LIN) , provides explicit quantitative guidance for the upcoming quarter and full year. And management usually notes that their approach to guidance is to assume "no economic improvement," while clarifying that they are not making a "macro projection" but simply using the economic environment at the time as a "placeholder" that allows investors to "insert [their] own view of the economy and adjust accordingly." Management also noted that "if the economy improves, we'll be above this range. And if not, we'll take actions to mitigate." Those comments allow investors to better utilize subsequent macroeconomic data with the understanding that economic improvement likely points to earnings upside for Linde, while deterioration could suggest a less-than-desired outcome in the next earnings release. Had you skipped the call, you would have taken the guidance at face value and left information that could potentially give a shareholder an edge on the table. Beyond the guidance and assumptions that went into it, additional commentary from management at this point in the call might include thoughts on the near, medium, and long-term outlook. It could also touch on how management thinks about operating the company — including how to balance profits with growth or whether to invest its excess cash or return it to shareholders. In its earnings call for the fourth quarter of 2022, Coterra Energy's (CTRA) management gave investors an update to its approach to cash, noting: "We are pivoting our capital return priorities to favor buybacks over the variable dividend," citing macroeconomic shifts like "looming global supply-demand imbalance" for the oil market." But management added: "We're not backing off our core pledge to return at least 50% of free cash flow to our owners in the form of our base dividend, buybacks, and variable dividend." As an investor, it's important to know what management thinks the best use of cash is because whether you agree or disagree is going to inform your opinion of the investment's potential. Meanwhile, earnings-call comments from Meta Platforms (META) CEO Mark Zuckerberg at the start of the year dramatically transformed the trajectory of the tech stock. Zuckerberg indicated that the company was shifting focus away from overspending in the so-called metaverse to focus on a "year of efficiency" for the company. Investors rewarded the move, sending the stock soaring by over 20%. AFTER THE CALL The work doesn't end just because the call does. Once the call is complete, it can be helpful to read over the transcript, which can generally be found on the investor relations site a few days later. After investors have reached their own conclusions on the results and management's comments on the call, we can start to research what other's thought about the release and management's commentary. This could be news headlines, analyst takeaways, or simply a discussion with other investors. Either way, hearing from others will help us formulate, rethink, reevaluate or refine our own views on the quarter and path ahead. It's also helpful to review the results and calls of rival companies in the same sector, or that of customers and suppliers. Investors should be thinking about what others related to the company in question said on their calls. This could be a peer company, customer or supplier. We spoke more about the idea of analyzing peer companies or those up and down the supply chain in our review of the semiconductor industry . An individual investor might not have their own financial models. But taken together, all this information can usually help shareholders get a sense of whether estimates are going up or down — consensus estimates are often updated within 24 to 48 hours of a release — and use that to update their price targets. At that point, they will have a better sense of the company's current valuation and, ultimately, the current risk-reward profile of the stock. That was the case with Club holding Nvidia's (NVDA) most recent report , which included a monster guide that saw shares surge over 40% in the following weeks. Despite the big move, we opted to hold on to all our shares. That's because the stock actually managed to get less expensive on management's forward-earnings estimates, even with the stock's post-earnings appreciation. We didn't need our own financial model to figure that out — just an update on the consensus earnings projections that were available the following day. Ultimately, listening to the post-earnings conference call is an essential piece of homework required of those who own individual stocks, allowing shareholders to build — and revise — a coherent and forward-thinking investment thesis.
