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Great quarter guys!

Why quarterly results conference calls must stop

Dan Davies
Oct 31, 2014 · 9 min read

*BEEP* Welcome to the Hobnail Industries Quarterly Results Conference Call. Press STAR on your keyboard to ask a question and POUND to remove your question from the queue.

The Financial Times published an article the other week suggesting that quarterly reporting was really not necessary, and that it was hard to see the benefits which might justify the spending of so much top management time on it. There are views for and against that — it makes sense to me personally — but whatever one thinks of quarterly reporting, I’m here to discuss the related phenomenon of the quarterly results conference call.

*BEEP* We have a question from the line of Jim Seevers, from JT Marlin.

Great quarter guys! I’d like to drone on for a bit, and make it perfectly obvious that I had a meeting with you before the close to discuss my numbers. I’d also like to remind all the other analysts on this call that I’m the most experienced analyst with a buy recommendation, which is why you took my question first. So my question is … What do you think about how the quarter went?

We thought it went pretty good Jim! Thanks! See you at the conference in Boca!

When people think about conference calls, they think about the legendary Enron “asshole” call in 2001, where Richard Grubman managed to seriously hold management to account. And they think about that because it is, pretty much, the last time that anything interesting happened on a results call.

*BEEP* We have a question from the line of Boris Bostoff from Dunder Peabody

Actually it’s Chris Malz. Boris was just calling in and holding the line for me because I am so important, and there is no sense in which I am less important than Jim Seevers. Anyway …. Great quarter guys! I see your earnings came in a little bit lower than I’d been expecting, but I’ve got a Buy on your stock and my sales desk are chewing me out. Can you tell me which line of the accounts you think we should look at instead?

Hi Chris! Well, earnings, sales and margins were kind of challenging this quarter, but we’re really pleased at the way the depreciation charge fell. So if anyone is looking at these earnings, we’d draw their attention to the depreciation charge as the real measure of our performance.

Thanks guys. I’d just like to reiterate, I am if anything more important than Jim, I have more interns reporting to me and I probably get paid more. Also I’m a Global Sector Co-ordinator. I just wanted to say that.

For the best of reasons and the worst, it’s nowadays more or less impossible for management to say anything useful on a conference call. Because they are “public” for the purposes of SEC Regulation FD, a company is publicly committed to anything they say on a conference call, and so the lawyers will always discourage people from giving information that isn’t already there in the published statements. The most that management can do is “draw attention” to what they consider to be important, and this generally means to add spin.

*BEEP* We have a question from the line of Steve Yang from Flywheel & Flywheel

Great quarter guys! Really appreciate the chance to discuss this massive earnings miss, really great guys. So what I’d like to ask is … I know you can’t forecast your earnings for the next quarter but … Could you forecast your earnings for the next quarter, please?

Well thanks, Steve, always good to hear from you. Sorry, but we really can’t forecast earnings.

Thanks guys that’s really helpful. Great quarter!

This might not matter if conference calls were full of really useful non-financial information about product launches, branding, customer acquisition and so on. But typically they’re not. This is because firstly, a lot of that stuff is potentially market-moving and so still covered by Reg FD, and secondly because the quarterly information pack is put together by the Investor Relations division, who usually report to the CFO.

*BEEP* We have a question from the line of Rich Smith from Tunnelbridge Securities

Great quarter guys! Just following on from the last question, I thought maybe … I realise you can’t forecast your earnings, so I’ll maybe try to ask the same question, but in a different way … Could you forecast your earnings for the next quarter, please?

Hahaha, sorry Rich, we really can’t forecast our earnings.

Hahahaha great guys. Can’t blame me for trying huh? Sorry to waste everyone’s time

Like you do every quarter. Thanks Rich.

The conference call is, nominally, meant to be for the benefit of the analysts who cover the stock, to help them update their models and forecasts. Once upon a time, it was probably useful in this respect. However these days, as the market opening hours have got earlier and the total amount of disclosure (and therefore the size of the models) has increased, it’s more of an inconvenience; a big one-hour gap in the middle of a busy morning where you can’t do anything useful and your phone line is tied up.

*BEEP* We have a question from the line of Raj Patel from Grossenbank

Great quarter guys! Thanks for all the detail you’ve given us. But just on this multi-billion dollar court settlement that’s mentioned in the footnote on slide 55. I just wanted to ask — can you give us any more detail on that?

Hi Raj. (whisper) whatcanwesayaboutthat (shuffle rustle) Hi Raj. We’re constantly searching to improve our processes and working with the state authorities to make sure things are handled fairly.

Thanks very much guys, that’s really useful.

(whisper) … do you think I said too much there?

The situation is made worse by the fact that most analysts went to good universities and business schools, and don’t seem to have escaped the notion that grades are handed out for classroom participation. Everyone has to ask a question, and because of this, combined with the ever-growing number of analysts covering each stock (which is no longer restricted by the physical size of a meeting room), the one-hour conference call is a fond memory in many sectors — ninety minutes is probably the median and I have been on a fair number of two-hour calls.

*BEEP* We have a question from the line of Julian Sanders from Royal European Bank Investment Banking

…. Errr …. Hullo, thanks for having me on this call, I just wanted to ask … Sorry, Great Quarter Guys! Anyway, I arrived late on the call, and I’m sorry if this has been asked before or if it’s in the slide pack but … Could you tell me what the earnings per share were this quarter?

Hi Julian. EPS was $1.30. It’s there in the pack on page … Page 1, in big red letters.

Thanks very much.

Faced with the overwhelming uselessness of conference calls, it’s not surprising that a lot of participants have basically decided to use them as a form of advertising. The good thing about a quarterly conference call is that it’s a venue where you can be reasonably sure that all your competitors and a lot of the most important investors are all listening in, hanging in to the bitter end of the Q&A session in the forlorn hope that something important will be said. So if you want to get a message out to a lot of people who generally delete your voicemails and certainly don’t return your calls, a conference call is a pretty reliable way to do it.

*BEEP* We have a question from the line of Sanjay Patel from Yoshimi Securities

Great quarter guys! Just filling in my model here … I see that in the Associated Products division, the “Other” category of the “Miscellaneous Sales” revenue line in the Pacific Excluding Indonesia geography … It went from $0.5m to $0.7m. Can you explain to me what happened there?

Hi Sanjay (whisperwhisper) Well we’ve always regarded P-ex-I as a key geography and Associated Products as a major geography so … (whisperwhisperrustle) Maybe we could get back to you and take this offline?

Great quarter guys, thanks!

So, the quarterly conference call is a good way to try and advertise your availability for a better job, or to impress people with how detailed your model is. It’s also a good way to bash a set of good earnings for a company you’ve got a Sell on, or to try and rescue a dog set of earnings for one of your Buy recommendations by adding your own spin to the management’s. You can even try to curry favour with the company management by throwing up absurd softball questions. None of these things really work, because in general your audience just kind of hates you for making the whole tedious process last a few minutes longer. But it sort of feels like you’re doing something productive, which is a useful morale boost.

*BEEP* We have a question from the line of Dieter Kroose from Landschaftbank Bayern

Sorry actually my name’s Dieter Krose. Great quarter guys! I just wanted to focus on the EMEA geography, where margins are up and sales growth was 10%. I have a three part question if I may. First, would you say that this is one of the biggest success stories for your company? Second, would you say that this success is likely to continue and even increase over the next few quarters? And finally, do you think the market is not giving you enough credit for the strong growth potential of your EMEA operations?

Thanks very much Dirk, great question! Yes, we really think that EMEA is a great story.

Actually it’s Dieter. Thanks very much guys!

I have included various lightly fictionalised conference call contributions in this piece, and to be honest the only unrealistic thing about them is that I’ve pretended that each analyst might only ask one succinct question, as opposed to a rambling multi-part monster (I’ve also only used the phrase “going forward” once or twice rather than eleventy-billion times). Time was when analyst meetings were held in halls, and a form of rough informal discipline could be enforced by the community — I have on one occasion seen a small deputation sent to tell one analyst (who had got into the habit of asking the same facetious question to every UK bank at every meeting) that he had to stop, and I can certainly believe apocryphal stories of punches on the arm to repeat offenders. But those days are gone.

*BEEP* We have a question from the line of Jill Schwartz from Diluvium

Hi guys … I’ve heard all these questions and I’m surprised that nobody’s asked yet about the balance sheet.


Because … I appreciate all the good work you’re doing on sales and margins, but it looks to me as if the interest cover and debt leverage is really close to breaking some important covenants. Can you give us some detail on how you’re planning to deal with that?

Hi Jill, always a pleasure to hear from you. We’ll have to get back to you on that so can we take it offline?

Actually I really think you ought to (click, buzz)

It doesn’t have to be this way. Expeditors International, the freight forwarding company, doesn’t do conference calls — it collects all of the analysts’ and investors’ questions via email and then provides written answers with its quarterly filings. No bad consequences seem to follow from the lack of a quarterly schmooze.

*BEEP* We have a question from the line of Ross Baker from Steeplepoint Capital

Always good to hear from one of our investors!

Hi guys, great quarter. Just asking really, the global sales figure and trajectory, can you give us any color on that?

Pale pink.

And can you maybe, looking at these sales and where they’re going, give us some flavor of what we can expect?

Sauteed mushrooms. Maybe a bit of cinnamon.

And on the EBIT line … Thanks for all the color and the flavor, but maybe you could give us some odor?

It stank.

*BEEP* There are no more questions in the queue. You may now hang up.

Bull Market

Thanks to felix salmon, Francine McKenna, and James Kwak

Dan Davies

Written by

Senior Research Advisor, Frontline Analysts

Bull Market

A collection of finance and business writing by @alexisgoldstein, @delong, @dsquareddigest, @DuncanWeldon, @felixsalmon, @jamesykwak, @Mark__Buchanan, @WhelanKarl

Dan Davies

Written by

Senior Research Advisor, Frontline Analysts

Bull Market

A collection of finance and business writing by @alexisgoldstein, @delong, @dsquareddigest, @DuncanWeldon, @felixsalmon, @jamesykwak, @Mark__Buchanan, @WhelanKarl

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