Making The Most Of The Final Earnings Season Of The Year

We are now entering the final earnings season of the year. Over the next few weeks, thousands of firms will provide financial statements indicating how they performed over the previous quarter. Investors should pay close attention to these announcements — and management’s associated discussions around them — as they build and monitor their portfolios.

Of particular interest within these statements is the earnings per share (EPS) metric that reveals how much the firm made in accounting profit on a per-share basis in the preceding quarter. If a firm’s announced EPS differs significantly from market analysts’ projections or if management provides unexpected news about the firm’s future, the stock price can swing substantially.

What is Earnings Season?

The Securities and Exchange Commission (SEC) requires publicly-traded companies disclose, at least quarterly, the financial conditions of the firm. At the conclusion of a company’s first three quarters in a year, the company must file a Form 10-Q that highlights the results from the firm’s preceding quarter. Following the end of the fourth quarter, the company will file the lengthier and more detailed Form 10-K that includes audited financial statements and operating results. These statements also include management’s discussion and analysis to provide commentary on the financial reporting.

Given most firms’ fiscal years align with the calendar year, EPS announcements and 10-Q releases are generally clustered every 3 months, aligning with calendar year quarters. Thus, the middle of January, April, July, and October mark four periods of heightened corporate announcement activity and are each referred to as an earnings season.

Earnings Calls

Firms often, but not always, couple their 10-Q filing release with earnings calls. These live-streamed or recorded teleconference calls between firm management and analysts consist of conversations about the contents of the filing. Managers discuss not only their firm’s recent performance but also provide forward-looking guidance and projections. They additionally field questions about the company’s outlook from professional analysts in attendance.

While investors may wish to consider managers’ earnings call comments when choosing to invest in a company, they should be mindful that managers may be overly optimistic about the prospects of their firm. Paying close attention to the analyst questions — and management’s response to them — is important.

Calendars And Resources

Investors can find firms’ 10-Q and 10-K filings on the SEC Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system. EDGAR also hosts firms’ other financial filings, including proxy statements and ownership disclosures. All are useful in painting a more complete picture of the firm.

Firm’s investor relations websites also provide links to firm filings, as well as presentations and recordings for earnings calls. In addition to visiting a company’s investor relations website, investors can also use earnings calendars such as the ones available at NASDAQ
NDAQ
and Yahoo! Finance to keep track of upcoming announcements.

Looking Ahead To Next Year

This earnings season, investors may be interested to hear how managers address pressing economic issues — particularly inflation, interest rates, and geopolitical uncertainty — and what that means for their firms. The value of a stock is contingent upon the company’s future, not its past, so investors should heavily weight the firm’s prospects in their analysis of a company.