5 Things You Will Never Hear on an Earnings Conference Call

Written by GSCR Staff   
Wednesday, 31 July 2013 08:42

We are in the heart of 2Q earnings season for 2013.  There have been some high profile hits and misses.  One thing to keep in mind if you do happen to listen in on one of these conference calls is that a company’s management will always try and put a positive spin on bad news or financial data.  Here are 5 things you will never hear and a guide to wade through the bull.

1)    We missed on revenue/earnings and are not sure if we will ever turn it around.

A common practice when firms miss estimates is to raise guidance for future quarters or annual predictions.  This is a ploy to keep the stock from getting hammered.  A lot of times this trick works and then some, as the stock will actually go for a pop.

2)    We really got lucky with some of our operational efficiencies over the past few quarters.

Companies implement efficiency or cost reduction programs with fancy names like six sigma.  Often times the improved margins are just a result of economies of scale with increased sales.

3)    Our new product/service(s) will be ready sometime in the near term.

A huge consideration that analysts factor in valuation is future sales from future products.  Knowing this company management will always give a timeline, usually overestimated, on new products/services.  Remember the Boeing (NYSE – BA) Dreamliner.

4)    We are losing market share because the competition is just plain better than us.

I am reminded of a line from the cult classic mockumentary This is Spinal Tap.  The band’s manager explains to an interviewer that the bands’ following has become “more selective” as a way to explain concerts at smaller and smaller venues.  This is usually a case of a firm not keeping its eye on the ball.  See Blackberry (NASDAQ – BBRY) and consumer tastes.

5)    Our warranty/service/legal issues are just a result of our own stupidity and negligence.

Management will always give the impression that a solution or resolution to these problems is imminent.  The courts can take months or years.  In our small cap space these types of issues can be devastating to the company and stock.

Numbers do not lie, and at some point you have to put faith in the system.  Picking stocks for long term investments based on quarterly earnings announcements is usually not a good strategy, but at the same time present an excellent short term trading opportunity.

Today is a big day for prior Market Monitor stock picks.  Earnings announcements from CADX, MTOR, HERO, PGTI, ISSC, LOCK, and ISIG are coming out today.  Additionally, the Fed will give its guidance on interest rates at 2 PM eastern.  Look for some big pops on good news.

Have a great day.

 

Disclosure: Goldman Small Cap Research analysts are neither long nor short these shares but may elect to purchase the stock within the next 48 hours.

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