Your biggest customer reports this month. Someone in sales will probably forward the headline, earnings beat or miss, maybe with a thumbs-up emoji attached, and none of it says how many units that customer plans to buy from you in the first half of next year. That number is often somewhere in the call. It's buried about thirty minutes in, after the slides, and most supplier finance teams never get that far. So this is about how to read customer earnings calls from the supplier's side of the table, which turns out to be a pretty different exercise from the one the investor guides describe.
Third quarter season is already underway. FactSet's October 9 Earnings Insight had analysts expecting the S&P 500 to grow earnings 29.6% year over year, and more companies had raised guidance than cut it, 72 to 44. Nice for the index. A number like that gets pulled up by a few dozen very large companies, though, and tells you close to nothing about whether your particular customer is one of the 44.
What to listen for in an earnings call when you sell to the company
Investors on the line mostly want to know if the stock is cheap. As a supplier you care about how much they'll buy, what they'll pay and how long they'll take to pay it, plus the slightly paranoid question of whether you'll still be an approved vendor next year. The call rarely covers any of that directly, but it leaks it in a handful of predictable places.
Start with segment guidance. The company total makes the headline, and it's close to useless if you only sell into one division. It's common for a company to guide its total up while the division you supply gets guided down, and your sales team will remember the first half of that sentence.
Then inventory. Phrases like "normalizing channel inventory," "rightsizing" or "working down inventory" all mean roughly the same thing for you: they'll sell off their own shelves before they reorder. And your orders can fall harder than their sales do, because they're trimming demand and their safety stock in the same quarter.
Capex comes next. A customer raising capital spending is building something, and if you sell equipment, components or construction work, that's next year's backlog getting described out loud by the person who signs the purchase orders. A capex cut deserves the same attention from the other direction.
And listen for anything that sounds like a cost program or a working capital goal. "Procurement savings" and "vendor consolidation" have to come out of somebody's invoice. When a CFO on the call talks about stretching payables, assume your invoices are part of that plan and pencil a few extra days into your DSO for the account.
Read the Q&A before the prepared remarks
The prepared remarks are written by a committee and run past legal, so they're about as candid as a press release. The Q&A is looser. Analysts ask the awkward question you'd ask if you had the dial-in, and sometimes management answers it. Anyone who has spent years in enterprise sales, and I have, learns to notice how long an answer runs as much as what's in it. When a CEO gets asked about pricing and talks for ninety seconds about value without a single number, that's information, especially if you're about to send them your own price increase.
Suppliers' calls deserve the same treatment, and they often move first. Nucor's guidance on September 17 put third quarter earnings at $5.55 to $5.65 a share, up from the second quarter, and pinned the steel mills improvement mainly on higher average selling prices with volumes holding steady. If steel is a big input for you, that release told you where your costs were heading weeks before a quote landed on purchasing's desk. In the briefings we put together, a customer's or supplier's guidance shows up as one of the more useful items more often than I expected, and people still tend to file it as somebody else's news.
Where to find earnings call transcripts free
No terminal required. Public companies furnish the earnings release to the SEC on Form 8-K under Item 2.02, within four business days, and it's on EDGAR for anyone. Most put it out the morning of the call. The webcast replay sits on the investor relations site, usually under something like events and presentations. The Motley Fool posts transcripts for a lot of the larger names, and Seeking Alpha bundles them into its paid tier. If you're tracking ten or fifteen companies I'd go with transcripts every time, mostly because nobody wants to scrub through an hour of audio looking for the word inventory.
Turning a call into a budget number
Roughly how I'd set this up for a small team:
- List the customers that make up most of your revenue and your two or three most important suppliers. For most mid market companies that's fewer than fifteen names. Some will be private, in which case find out who they sell to and listen to that company's call instead. It's an imperfect proxy, and usually better than nothing.
- Give each company one page with the same five rows every quarter: segment guidance, inventory, capex, cost programs, working capital. Copy management's own words into each row rather than your summary, because next quarter you'll want to see whether "stabilizing" turned into "improving" or slid back to "challenging."
- Mark each row up, down or flat, and note which line of your plan it touches. Volume on a product family, price, DSO, a raw material.
- Take the pages into the budget meeting with sales. If the sales plan has your top account growing 12% next year and that account just told investors it's working inventory down through the first quarter, somebody has some explaining to do, and it probably shouldn't be you.
None of this replaces talking to the customer. You'll still have that conversation, just with a decent idea of what they already told Wall Street, which beats finding out from your order book in February. If concentration is the bigger worry, the post on watching your biggest accounts goes further, and this one on peer benchmarking deals with a board that reads the same headlines you do. And if forty calls a quarter sounds like a lot, a free briefing on your own company will do the first pass across your customers and suppliers.
CFOmarketIQ reads your customers', suppliers' and competitors' public news against your own numbers, and the first briefing is free.
Questions CFOs ask about customer earnings calls
What should a supplier listen for on a customer's earnings call?
Mostly five things: guidance for the segment you sell into, any talk of working down inventory, changes to capital spending, cost or procurement programs, and working capital goals like stretching payables. Together they cover volume, price and payment timing. The headline earnings number matters a lot to investors and much less to you.
Where can I find earnings call transcripts for free?
The company's investor relations site has the webcast replay, and the earnings release itself is on SEC EDGAR, furnished on Form 8-K under Item 2.02. The Motley Fool posts free transcripts for many larger companies. Seeking Alpha has them too, though it includes them with its paid subscription.
How can you tell if a customer is destocking?
Listen for phrases like normalizing channel inventory, rightsizing or working down inventory, then check the inventory line in their 10-Q from one quarter to the next. If sales are roughly flat and inventory is falling, they're buying less than they sell, and that tends to reach your order book before it shows up in their revenue.
Is the Q&A more important than the prepared remarks?
For a supplier, usually. Prepared remarks are scripted and reviewed by lawyers, while the Q&A is where analysts push on pricing, demand and costs. A long answer with no numbers in it can tell you more than the script did. Read the Q&A first and go back to the remarks for the guidance figures.
A note on all of this: it is general information, not financial, legal or tax advice. Run anything you plan to act on past your own advisors first.