Hot on the heels of quarterly earnings press releases, most public companies host a discussion of financial results and business progress called an earnings call. What is discussed on these calls, and how important are they for investors? In this Motley Fool Live segment from "Beat & Raise" recorded on Oct. 5, contributors Jason Hall, Brian Withers, and Nicholas Rossolillo talk about earnings calls and what can be learned from them. 

10 stocks we like better than Walmart
When our award-winning analyst team has an investing tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

They just revealed what they believe are the ten best stocks for investors to buy right now... and Walmart wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

Stock Advisor returns as of 6/15/21

Brian Withers: There is an earnings call, and so the number of people on this call varies from minimum, it'd be the CEO and there's Chief Financial Officer, some will have four or five folks in depending on maybe what's going on with the business. They might have an operations lead or a marketing lead or whatever.

Jason Hall: Sometimes, there's just an executive that's really good in those call environments that has their finger on the pulse of different parts of the business that shows up. That's really interesting when you see them.

Withers: Yeah, I was going to take note of who comes. Then they host usually audio calls, some of them are becoming video calls, to where there's a certain set of analysts that follow the company. A lot of times, you can find these analysts on the company's web page. These are known entities. These folks follow the company, they interview them periodically. Likely, they're on every single conference call, so management knows who these folks are.

In the beginning of the earnings call, there's usually some script that's read. The CEO usually goes over the highlights and the accomplishments for the quarter, the CFO goes through the numbers and presents the financial outlook. The CEO may pull it back and just describe in general what they're doing to go forward and reiterating the strategy, and then let's open it up for questions. Some companies, [laughs] very few of them don't have questions. There's some companies that actually do have the 20, AppFolio (APPF -0.55%) is one of them. They are on for 15 minutes and then they close the call and that's it. That's not usually the case.

They usually have the Q&A session, but I'd like the ones that the CEO and CFO don't come through and have that script. They actually just publish it. A lot of times, they publish what they call the prepared remarks, and they put it on the website, and that's easier. You can get that half an hour in advance, you can read through it. Then I think the Q&A session becomes better. The Q&A session is interesting because, generally, think about a bunch of analysts and what's their job is to file a company and project what the company is going to do in the future. They're these detailed Excel models on all the revenue and the segments, and the gross margins, and the cash burn, and all this kind of stuff.

Hall: By the way, Brian, that's not really their job.

Withers: Yeah.

Hall: That's their public-facing job.

Withers: Yeah.

Hall: It's really about access.

Withers: Yeah. I guess, to your point, there's two things that they're trying to get out of the call. One is, do they need to change something in their model?

Hall: Right.

Withers: I actually like this part of it. It may seem a no, sometimes, some analysts ask these weird questions about single numbers on this financial statement. Why they're asking it is because it came out different than they expected.

Hall: They're trying to figure out a 90-day price guidance. They're using that stuff to dig into that price.

Withers: Sometimes, this is the beginning of the trend. Sometimes, it's unimportant. Depending on how management responds, you get a good feel for that. Then I guess the other part is really around reiterating strategy, what are options for growth, and things like that. I don't often get a ton of new information from these earnings calls, and I would consider that a success. You go through and there's no new news. Woohoo, check, double-check.

The ones that I like the most are the ones that reiterate our strategy, going back to our strategy and they have more than one person talking and you can tell that the management team is aligned and consistent and they all watch each other's back. Those are the things that I like. I like to watch in here just the interaction and how they answer the questions, not necessarily what the specific content of the questions are. I went on for probably more than you expected. I was wondering, Nick, what was your perspective on the earnings calls? Is that something you like to listen to?

Nicholas Rossolillo: Yeah, I do. Some companies more than others. Some of them are downright entertaining like you never know what Elon Musk is going to do on quarterly earnings.

Hall: The CEO of Cleveland Cliffs (CLF -0.47%) is the same way and can even be brutal. [laughs]

Rossolillo: Yeah, sometimes, they're not nice to be analysts, which is entertaining. I do like these though, especially some management teams, I feel they take it upon themselves to educate the outlook on what the company does, and so sometimes these earnings call with company slides presentation where they walk through different elements into the business, and especially if it's a company that you're not really familiar with, where you're still trying to get a grasp on what it does. You can learn a lot about what the business is actually up to, especially as they provide some anecdotal stories on this new customer in the last quarter started using us for XYZ reason, here's what we helped them accomplish.

It's, again, anecdotal that doesn't necessarily translate to grow their profits for helping make a decision that yes, this is a buy or not, it's not anymore, but it can help you learn about the business and get just a nice debrief on what is going on.

Hall: ProShopGuy, actually, Mike dropped that in a comment here in the He talks about that as a new first-year investor, have built a diversified portfolio since April 2020, since summer and not adding new capital still have a long time horizon. Using the quarterly earnings of companies is an opportunity to learn, if I'm going to keep them. I want to focus on that learning part, because that's the key here. I would say, generally, probably 99 percent of the time for most investors to healthy thing to do in terms of action around earnings is just learn. You don't need to do anything.