Want to hear the real scoop about your company?Sure you do. We all do. When we value-oriented
- Candor and confidence. Does management seem approachable, confident and glib? Or does its tone seem guarded and scripted? What's the mood -- does management seem happy and secure about what's going on, or does it seem to be covering its backside and looking for a rock to hide under? Pay attention to language, too. In a recent Lowe's (LOW) quarterly conference call, a 6.7% drop in operating margin was described as a "670 basis point deleveraging." OK, that may be accurate, but it's not exactly presented in an open or clear way. We can't see body language at a CC, but the words can tell a lot. Also, is the management team having fun? The CarMax (KMX) management team is known for hosting friendly onsite barbeques for store employees. Do you get this impression from the CC, or again, is management defensive and distant?
- Business segment breakdown. Conference calls give me a clearer breakdown of the business by segment -- what products are selling, what products aren't. You'll find out more about what's working and what isn't -- and what the company plans to do about it.
- Market conditions. Many CCs offer tips about market share, share gains and the competitive landscape. You might also hear how your company's downstream channel partners are impacting the business. I follow the composite decking industry (see my recent
article). Trying to learn more about the business of a major player, Trex (TWP), I listened to the CC for competitor Advanced Environmental Recycling Technologies (AERT). From the AERT CC, I picked up that Lowe's, a major channel, is reducing inventory in these lines, explaining recent softness for both AERT and Trex. Supply-chain linkages can also be revealing. In a recent Hewlett-Packard (HPQ) CC, a connection was made between improvement in gross margins and reduced memory-chip pricing. So that tells me something about H-P -- but memory makers also like Micron Technology (MU). If I'm a Micron investor, I'd be listening in on H-P's, Dell's (DELL) and other CCs.
- Production and supply issues. Profits depend, of course, not only on what a company sells but what it makes and how much it costs to make it. During CCs, you'll usually get a clearer understanding of what's happening and changing on the operations side. From the AERT call, for instance, I learned more about the effects of plastics pricing and recycling efficiency on current profitability.