Earnings: Decoding the Conference Call

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4. Will GE bring good things to light?

General Electric (GE) reports earnings on July 11, and many fund managers say the conference call for the huge conglomerate is a don't-miss event.

GE's disappointing first-quarter report rattled the stock market, so expectations are low. "If [the news] is positive, the market could possibly rally on that news," says Michael Church, senior portfolio manager at Church Capital Management. If more negative news comes out of GE's finance unit, however, "the market is going to be spooked," he says.

Big industrial firms such as GE have profited from booming demand overseas. Kaufler says he'll listen to conference calls closely for any sign that the global economy is slowing.

5. Don't get spun

"I've always been cynical about these analyst calls," says Terry Morris, senior equity manager at National Penn Investors Trust. Executives invariably try to "put a positive spin on things," but Morris says he focuses mostly on the numbers that executives report, not the words they say.

If executives sound overly negative, on the other hand, they may be trying to manage expectations. Executives often walk a fine line in their quarterly conference calls: They want to impress investors and play up good news, but they don't want to raise expectations so high that those expectations can't be met.

"Apple (AAPL) has been very good at underpromising and overdelivering," Morris says. "That's part of the reason the stock has done so well." Apple's earnings arrive July 21.

6. Listen for tone

How do executives sound? "Sometimes your gut says these guys sound nervous," Church says. But, he adds, that's subjective and a tough basis on which to make investment decisions.

Kaufler advises investors to "attune your ears for candor or the lack of it." It makes a big difference if the management team is "speaking in specific terms" rather than being vague. A lack of candor may be a sign of problems at a company.

7. Listen to the analysts' questions

On most conference calls, only equity analysts at investment banks are allowed to question management. Because these analysts are often quite well-informed about a company, their questions can be as informative as the answers, Yared says.

But conference calls don't always create useful information for investors. "This is a very over-lawyered group of people," Yared says of executives. "Everyone is so cautious."

Still, earnings calls can be valuable to investors. Despite the caution and the cliches, the talk can still turn up plenty of surprises.

Steverman is a reporter for BusinessWeek's Investing channel.