Every 90 days, the executive leadership team of every publicly traded company delivers an earnings call to shareholders and analysts to review the previous quarters’ business results and to discuss and
share future performance through forecasts and general guidance.
These earnings calls are very important and can significantly influence the analysts and more importantly, the employees of the company. The best leadership teams can uniquely combine humility, transparency, and data into a story that gives direction and convinces analysts to want to buy more stock in the company, hold their stock, or sell their stock. It can motivate or demotivate an entire workforce. It is said there is nothing better than a great earnings call to fire up the employees and nothing worse than a terrible earnings call to put them in the doldrums.
Over the past few years, I have heard more executive and senior leaders push their employee base to listen to the earnings calls as a way to learn more about the business and to help create better internal alignment around direction and decision-making. Unfortunately, most of these same executives believe less than 20% of their company listens to the earnings call and maybe at best 2% of the company can follow along. And that is startling.
The earnings call can be an incredible source of business acumen information and I believe one of the reasons that the attendance and comprehension is so low is a result of low business acumen skills.
So, let me paint a picture for you. You are sitting in the cafeteria at your company’s headquarters eating a nice fresh slice of pizza. You are minding your business and preparing for your next meeting when you look up and see the CEO of your company coming over to sit with you. She pulls up a chair, says hello, and asks you, “What did you think of the earnings call this morning?”
What would you say? If you do or don’t know, here are 10 things that you should be listening for the next time you check out the earning call.
Strategy – What is the value proposition being offered to your customer? Are you consistent? Do the targeted customer segments understand and appreciate your value proposition?
Strategic Initiatives – These are special programs and projects put forward by the executive leadership team to drive the strategy.
Revenue (also known as Sales but not to be confused with the Sales team) – What is the “topline” amount of money generated by selling your products/services to your customers?
Organic Sales Growth – The amount of topline revenue being generated from core, mature, and growing products. These tend to be the most profitable products in the portfolio.
Earnings per Share (EPS) – This is the profits (or net income) of the business divided by the total number of outstanding shares of stock. Wall Street loves EPS (and dividends) growth so understanding these metrics helps you understand a lot.
Key Customer Wins – Another thing that gets the analysts excited is key customer wins (and key competitive losses). The more customer wins, the more revenue, the more profit, and more EPS.
Investments in operating expenses that support strategy – Operating expenses include things like Sales, Marketing, Customer Service, and R&D. The analysts love smart investments that are going to have a significant payoff.
Market Conditions – Sometimes there are things of your control or the control of the executive leadership team. Changes in market conditions include escalating unemployment and new regulations like the Inflation Reduction Act.
Operational Updates- These are going to include any breakthroughs in manufacturing, expansion of the Supply Chain, and achievement of certain quality metrics.
ESG strategy and accomplishments – Perhaps the toughest one to follow along as it is usually saved to the end is the Environmental, Safey, and Governance programs that the CEO supports and shares within their worlds.
In summary, this list of 10 things to listen for can help you understand the business better and provide some of the skills and tools needed to better know how your company is doing and the way that Wall Street is interpreting it. You never know who is going to sit down next to you at lunch and what they are going to ask you.
