Oct 12, 2022 - Earnings conference calls affect share prices. A new earning season is here, can Company's Executive Team or Investor Relations leverages on AI such as GPT-3 or Large Language Model to better prepared their earnings conference call? The answer is likely no. What they need is creative thinking. We did some experiments with this idea using software-assisted discovery and was able to validate predicted discussion with transcripts from earnings executive statement and analyst Q&A.

When every aspect of a problem is known, probability and statistics can be applied to optimize the outcome; otherwise, we have to apply intellectual thinking to seek out the unknown. In the case of earnings conference call, the unknown is the questions coming from analysts/investors attending the conference.

In a typical earnings conference call, probability and statistics will not help the executive team in preparing the questions unless questions were provided in advance. As outsiders, analyst/investor's reception of executive narrative is subject to external influence, such as economic macros.

ML based AI such as GPT-3 or Large Language Model cannot to used to address on such unknown context. The alternative is to apply creative thinking on prepared executive narrative, a process that calls for abstraction, imagination, and strategic thinking with augmented intelligence.

As an example, we use ELAINE to analyze Conagra Brands' Q1 2023 Earnings Conference Transcript.

Step 1. ELAINE analyzes the statement presented by Conagra Brands' executive

Step 2. What do we look for in the result?

Key take-away
Topics that supporting fact are lacking

Step 3. ELAINE analyzes the Q&A between Conagra Brands' executive and analysts

Step 4. What do we look for in the result?

Topics of analyst concerns
Is the topic of concern highlighted in the executive statement?

A More In-depth Look at ELAINE's analysis

The donut chart of the executive statement shows a lot of momentum, but it also contain some challenge

Key Focus discovered by ELAINE:

"Adjusted gross profit dollar growth was up 7.1% benefiting from higher organic net sales and continued progress on supply chain productivity initiatives, although supply gain operational challenges did impact our business as Sean referenced"

"As mentioned, we are pleased with the robust net sales growth and continued share gains across our entire portfolio, particularly within our domestic retail businesses."

"Diving further into our top line performance by retail domain, you can see on Slide 8 that frozen generated a significant acceleration of quarterly sales growth on a one and three year basis of 8% and 27% respectively"

"We were pleased that higher organic net sales and supply chain productivity drove increased adjusted operating profit growth across three of our four segments in Q1."

The abstraction discovered by ELAINE shows momentum (tailwind) in growth and performance of management in controlling inflation through venture.

The excerpt associated with the abstraction (growth, inflation, venture):

"The Ardent Mills joint venture continues to operate as an effective inflation hedge as favorable market conditions and effective management drove another strong quarterly performance reflected in the equity earnings line and contributing to adjusted EBITDA growth of 9.1%"

ELAINE also discovered some potential challenge in growth and productivity in meeting margin and profit target as depicted in investor day.

Challenge supporting factors

growth,operating)

growth,profit,operating)

growth,profit,grocery)

productivity,targets,operating)

productivity,targets,margin)

productivity,targets,investor_day)

The excerpts associated with the abstraction (productivity, targets, operating), (productivity, targets, margin), (productivity, targets, investor_day):

"Accordingly, we remain committed to our operating margin target for the year and to the productivity targets we announced at our Investor Day in July."

"In summary, we're off to a strong start in fiscal '23, fueled by robust top line growth as a result of inflation driven pricing increases and muted elasticities."

Next, we look at the result from the Q&A analysis.

Compared to the donut chart of the executive statement, the Q&A donut chart shows more challenge than tailwind.

Key Focus:

So, Andrew, we don't give specific quarterly guidance, but we do expect sequential improvement in gross margin and operating margins moving forward based on the assumptions we have now

So we like to believe that that's a proxy for a little bit less volatility moving forward.. . The inflation estimate for the full year is still low teens

We're seeing some green shoots obviously in some commodities and I think that does bode well. We are obviously much longer into an inflation cycle than anybody hoped we would be

Will it be at that point in time that your pricing will fully offset your inflation. Could that happen sooner based on, like, the wraparound effect of pricing.

The Challenge supporting facts center on inflation, margin, and pricing:

Challenge supporting factors

(inflation,quarterly)

(margin,quarterly)

(inflation,operating)

(inflation,margin)

(inflation,guidance)

(margin,guidance)

(margin,operating)

(margin,equates)

(margin,cost)

(margin,bridge)

Analyst Questions:

" I want to go a little bit deeper on gross margin. .. could we see gross margins start to expand year-over-year starting in fiscal 2Q, as the Street still has lower gross margins year-over-year?"

"You have some more price increases in 2Q and sounds like some smaller targeted increases in 3Q. Will it be at that point in time that your pricing will fully offset your inflation? Could that happen sooner based on, like, the wraparound effect of pricing?"