The Ins and Outs of Earnings Announcements

Earnings Announcements can be very helpful to investors and analysts. They can cause the market to move in all sorts of ways and impact a company’s performance expectations. Christine Short, Head of Global Corporate Events Research at Wall Street Horizon, a TMX Company joins Cassidy Clement, IBKR’s Senior Manager of SEO and Content to discuss.

Summary – Cents of Security Podcasts Ep. 41

The following is a summary of a live audio recording and may contain errors in spelling or grammar. Although IBKR has edited for clarity no material changes have been made.

Cassidy Clement 

Welcome back to the Cents of Security podcast. I’m Cassidy Clement, Senior Manager of SEO and Content at Interactive Brokers. Today I am your host for our podcast and our guest is Christine Short. She is the head of Global Corporate Events research at Wall Street Horizon.  

Earning announcements can be very helpful to investors and analysts. They can cause the market to move in all sorts of ways and impact a company’s performance expectations. Today we’re going to discuss all of that and more. Welcome to the program, Christine. 

Christine Short 

Thanks so much for having me. 

Cassidy Clement 

So, since this is your first Cents of Security episode, why don’t you tell the listeners a little bit about your background in the industry and, I guess, Earnings Announcements? 

Christine Short 

Yeah, I would love to. I am an earnings nerd, so I think I’m perfect for this episode. I started out my career on the equity research team at Thomson Reuters, which is now Refinitiv. First as an editor, actually. I have a writing and journalism background, but then later as an analyst, initially covering just the retail sector, but later on I moved on to a role as an Earnings Analyst.  
 

And essentially what that meant was I covered mostly S&P 500 Earnings Season each quarter. I kept tabs on specific industries and sectors, leaders and laggards in those sectors, what the overall growth rate was each quarter and how that compared to past quarters. And then I wrote about what that all meant for the overall economy. What is the financial health of US corporations? 

I held similar roles at Standard and Poor’s, and a number of smaller startups. And I do something similar now at Wall Street Horizon. You mentioned I’m the Head of Global Corporate Event Research and that includes not just earnings events which are our biggest events that we cover because they are some of the most volatility-inducing corporate events out there. But other things like investor conferences, shareholder meetings and we’ll get into how all of that comes into play.  

But again, at the crux of what I do is analyze these Earnings Announcements and these calls to figure out how a company is doing and what that means for the broader economy. 

Cassidy Clement 

Well, you seem perfect for the topic at hand today. So, if we’re going to go basics, what is an Earnings Announcement or an Earnings Call? That set of words floats around like crazy when the season starts. 

Christine Short 

Yeah, and they’re used interchangeably and they’re two different events. So, in its simplest definition, the Earnings Announcement, which always precedes the Earnings Call, is the company’s official public statement of their profits or losses, either for a quarter or the most recent year.  

And in there, you will get a peek at all sorts of things. You’ll get a look at the company’s income statement so their revenue and earnings. Their balance sheet. So that discloses what an entity owns and what it owes. So assets and liabilities, as well as their cash flow statements. So the amount of cash and cash equivalents entering and leaving a company. 

You can see how a company performed by region or business segment. They break it out in all sorts of ways. You also get a look at company or industry specific metrics. We can go into some of those later. As well as a brief summary from management. Doesn’t go into too much detail, but it gives you an idea of how they did what expectations are.  

Maybe a future outlook, some brief commentary. It’s usually released by the company’s Investor Relations team as a press release. And again, there will be some commentary, some charts and tables with data and then commentary supporting that data.  

Shortly after the announcement is the Earnings Call. Well, typically shortly after, I’d say within an hour. And that’s an opportunity for analysts, investors, media to hear from and ask questions of the company’s management team. Reports are generally released at two times of the day. So Before The Bell in the US, before markets open. That’s at 9:30am.  

And then After The Bell reports. So that’s after 4:00 PM. Usually, if a company reports Before The Bell, the call will be held later that morning. If they report After The Bell, the call will usually be sometime shortly after, or sometimes even the next morning. And it might depend on what coast you’re on. So that’s the difference, the Earnings Announcement comes first. You get some information, but then about an hour later on the call, that’s when the company’s management team really delves into the results. 

Cassidy Clement 

So, you had mentioned that there are a few times a year that this happens and it may be specified by what type of time frame that they are reporting on.  

So, when should investors or listeners be looking for this stuff? Like what times of the year are these Earnings Seasons or these calls? 

Christine Short 

Yeah, that’s a great question. And it actually depends on where you are or what markets you’re covering. So here in the US, they occur 4x a year, mainly because the SEC requires it. Companies have to file a 10Q, so an overview of their quarterly financial statement. They have to do that 4x a year.  

But companies in other countries are only required to sometimes report semiannually or even annually. To go back to your question about okay, when are the quarterly earnings reports? Well, coming up in a few weeks here, hopefully by the time this is published in April, we will start the quarterly Earnings Season for the first quarter of 2024.  

First quarter refers to how companies did between January and March. So quarterly reports are always backwards looking, right? And then we will go on through that Earnings Season, which usually runs, I’d say peak Earnings Season is about four to six weeks and then there will be a lull where there’s not as many companies reporting.  

And then in July we will start the second quarter Earnings Season for the year and that would track how companies did between April and June. So, July and August would be big Earnings Season months as well. And then you go to October as another big Earnings Season and then January you kick off the year. But again, that’s mostly for the US, maybe some Canadian companies, but if you are looking at, let’s say, UK or EU, they used to report quarterly.  

They stopped requiring that about ten years ago. Some exchanges will still require it, I believe from Germany and Austria. Quarterly reporting still required to be part of the prime market segment, but requirements of those quarterly reports aren’t as stringent. As you move around the globe, Asia-Pacific it’s really a mix. In China, companies may report quarterly. A lot of them are semiannually. Japan is still quarterly. India, they still report quarterly whereas Australia it’s only semiannual.  

So that’s just to give you an idea of a few. You can’t compare apples to apples between countries. In fact, I think we did an analysis of our data of companies that report twice a year and only 14% were North American.  

So, US and Canadian, mostly the other 86% were international. So, just to give you an idea of how the quarterly reporting is still very US-centric.  

And always hotly debated. There are proponents of quarterly reporting, because it gives investors more transparency. And then there are opponents who say that doing so quarterly makes you really focus on the short-term when investing should be long-term and it causes this sort of frenzy around Earnings Season. So just stay tuned because that debate comes up every now and again. But for now in the US, we are still reporting quarterly. 

Cassidy Clement 

So as we’re talking about this, obviously it’s implied to our listeners we’re talking about publicly traded companies and there’s always a wealth of information online that you can find out about the financials, press releases etcetera.  

But for this specific set of information, this Earnings Announcement, can anyone access that call or announcement or is there like a certain group that maybe gets the info ahead of time or maybe has the VIP pass to listen in before everybody else gets to see or hear? 

Christine Short 

Yeah. So, the answer is yes on both of those questions. So yes, anyone can access the information to the call or the announcement. So, the announcement, like I said, is posted to the Investor Relations site.  

You can also go on there and get dial-in details for the call. So, anyone can eventually access it when it’s public, but there is a certain group that gets the info ahead of time. So publicly traded companies very regularly share earnings releases or any other stock moving information ahead of time and under embargo with reporters and Sell-Side analysts.  

So, under embargo is the key phrase here, meaning reporters or analysts are not allowed to share or discuss or publish anything related to the embargo information, until the company announces it publicly. Nor are they, and it goes without saying, allowed to trade on it. That would violate insider trading laws.  

So yes, there are folks that get it ahead of time so that they can write their reports or write their articles. But again, regular folks like myself have to wait until it pops up on the Investor Relations site. 

Cassidy Clement 

Well, it seems like as you mentioned, as you’re collecting all this information and the time comes, there’s a lot of key pieces here. Because not only is it going to reporters, shareholders, the general public, there are real key points to maybe listen for or look for each call or announcement.  

So since you can learn so much about the investment, the company, potential performance, what are some key things for listeners to maybe look for? Or if they are one of these people, ask in these calls or announcements? 

Christine Short 

Yeah it can be overwhelming, right? Like you said, there’s a lot of information, you’re not quite sure where to start. So yeah, if you don’t mind, I will kind of take a step back and talk about how I would prepare for an announcement or a call of a company that I was interested in learning more about.  

So before the announcement even comes out, I try to take a look at things like last quarter’s results. I look at what the Wall Street analysts are expecting. So what’s the Wall Street consensus? I look at corporate guidance. What has the company said? How are they expecting to perform this quarter? I figure out if there are any specific industry or company metrics that I should be listening out for. So that’s piece one with prep.  

Now comes the Earnings Announcement. So it’s been published and when I read the earnings release, I closely review any of those stated benchmarks and metrics, top line revenues and bottom line earnings. How did those come out? Did the company beat, did they miss those estimates? And what I say beat or miss, did they beat what analysts were expecting or miss what analysts were expecting and did they beat or miss their own guidance? 

What about other important metrics that might be more telling of business conditions than earnings and revenue? For example for social media companies, sometimes it’s more important to look at their user metrics like daily active users. That can really drive a stock, maybe more than just the top and bottom line.  

Or for Netflix, it’s usually new subscribers. Have those gone up? Sometimes Netflix will beat both revenue and earnings expectations, but if they miss on the expectations for those new subscribers, then the stock will tank.  

There are those company or industry specific metrics that you want to look out for. Another thing that I’d be looking for in the initial release, besides those headline metrics, is what else are they announcing? Are they returning value to investors in the form of a stock buyback? Have they announced any dividend changes? What other major announcements are there, leadership changes, product updates, are they announcing any new partnerships?  

So anything that could stand to influence the future of the business in any specific direction. That’s what I’m looking out for. But again, the Earnings Announcement isn’t that detailed.  

So I might get a snippet, but I’m going to want to listen into the call to really get some more information there. So now let’s say it’s an hour after the release, I’m going to dial into the Earnings Call, which is split up into four segments. You’re going to start out, there’s going to be an intro and instructions by the moderator. Then there are welcoming and opening remarks by usually the CEO or another high-ranking member of management. Then you’re going to delve into the financial results with the CFO and here’s where you get a little more detail. And then finally the Q&A, which is mostly by analysts, but sometimes they take questions from institutional investors as well.  

So, I’m going to listen to all of that and I’m going to then analyze the call. Was there any further explanation on the quarter, whether it was good or bad? Because again in the Earnings Announcement, I’m getting an idea of how the current quarter turned out, but what’s the explanation by management? Is it a good explanation? Is it kind of a poor excuse?  

For a long time, there’s been jokes made about the weather excuse. So companies blaming the weather. Oh, bad winter weather. That happens every year. So, do I think it’s a good explanation?  

The second thing I’m really listening for on these calls is management’s tone in the language that they use. Overall tone and commentary, is it positive? Is it negative? Some CEOs are more transparent than others. Elon Musk is one that always comes up. It’s very clear from his tone whether or not he’s pleased with the quarter. And then I would say there are remarks from other CEOs that kind of lay it all out on the line. Someone like Jamie Dimon of JP Morgan.  

JP Morgan is the first real company that kicks off each Earnings Season. And so I think his remarks are always really scrutinized. Most recently in the Q3 2023 Earnings Season, he noted this might be the most dangerous time the world has seen in decades. I mean, people really paid attention to that. In the first few weeks of Earnings Season, you saw major dips in the markets, not necessarily because of those exact comments, but it was reflecting the overall uncertainty that investors were feeling, right, heading into the end of the year.  

So I’ll listen to any sort of comments where I can glean a little more information about the financial health of this company. Then again, more detail on any announcements made in the release. Aree there leadership changes, any sort of product updates? Are there partnerships? Are they open to M&A? So again, anything that could influence the future of the business.  

The results that you get in an Earnings Announcement and on the call are all backwards looking, right? You’re talking about a prior quarter. Like, it’s over. So, it’s not really impacting the future of the stock or of the business.  

So that’s where you look at the company outlook for the future quarter, for the year. It is important to look at, but I also always take it with a grain of salt because it’s usually quite conservative. Companies like to kind of manage expectations. They don’t want to over promise and under deliver. So, they usually under promise and over deliver. And the reason they do that is so that the next quarter comes along and when they over deliver, the stock pops. So, they do always keep it a little bit conservative. So that’s something to keep in mind, even though it’s a very important point you want to listen to on the calls. 

Cassidy Clement 

It seems like there’s a lot there to learn. There’s a lot of pieces to pick up. I know, at least for my notes, from all the research that I’ve done, another big piece is analysts may ask about the competitive landscape because Netflix isn’t the only gig in town.  

There might be Hulu or HBO, etcetera. And as you mentioned, your key metric, while revenue might look great, the gig is here’s our subscription model, so we’re looking to grow with subscribers. So, they may do the comparison that may allow the listener to make an easier correlation about how the company is looking.  

Like you said, you are looking back, but how are they looking in their current state based on their previous performance? 

So other than these Earnings Calls and outside of the Investor Relations or Investor PR making these announcements, what kinds of things can investors learn from the company and Public Relations otherwise? And where can they find this information?  

I know the most basic thing in business schools, is they say Google it or go to Yahoo Finance or go to MarketWatch or insert name of financial news site here. But where are more of the places that should be frequented? Maybe it’s the PR page or the Investor Relations page. 

Christine Short 

Yeah, that’s always where I start. The IR page where you’re going to get a look at any of the press releases, anything that’s going on with the company. Some types of reports that I look out for, other than the Earnings Call, is one area we call the interim reports.  

So auto companies are most known for their interim reports, reports that come out with information and financial information on the company that aren’t necessarily in the quarterly report and they happen monthly.  

So autos will announce their production deliveries numbers on the 1st of the month. There used to be something retailers would release, they still do, they used to release same store sales monthly.  

So how are stores that have been open at least one year performing? I think only a handful still announce that monthly. Most of them roll it into their quarterly earnings report. But there are those types of interim reports.  

There are also shareholder meetings. Those happen once, maybe twice a year. We’re getting close to peak shareholder season, which usually happens in May and June. You can get the details on that afterwards. If you’re not a shareholder, you wouldn’t be able to listen in directly as it’s occurring, but you will be able to get information about that afterwards.  

Product events. Think about the massive events that Apple holds to announce new products or upgrades. They do those twice a year in June and September, and those have the ability to really move the stock. There’s investor conferences. We do an update on these every quarter. There’s industry conferences, sector conferences.  

Those are happening all the time. We’re kind of in peak investor conference season now through the Spring. There’s always a bit of a lull in the Summer, but the Fall is always a very heavy time as well.  

And so yeah, if it’s a company I’m interested in, I go directly to the Investor Relations page. They will be announcing all of these events, as well as, again, any M&A activity, any new product launches, any new partnerships, so all the relevant information is there.  
 

I also just want to point out- you mentioned peer comparison as well. That might be relevant for your search as well. Like what are other companies doing that are within the same industry? Are they attending conferences and the company I’m looking at isn’t? What does that say? This is something we call corporate body language. If Facebook or Meta, ,rather, is out there more than Snapchat, what does it mean if they’re attending more conferences, if their upper management is speaking at these things and another peer isn’t? 

Peer comparison is very key as well because it might be a whole sector is doing well. Or it might be there’s winners and losers. If I’m interested in a company, I will go around and check what their peers are doing, what they’re announcing, how they’re performing as well. 

Cassidy Clement 

You mentioned a lot of really good points, and it also highlights the fact that while Earnings Announcements and these calls are great for helping with your research and selecting a company or continuing with your investment, there’s also several other additional pieces to look at. And thankfully with the power of the Internet, it’s really easy to find those things pretty quickly, so that as a point should be able to help people out in their research process. But thank you so much for joining us, Christine. This is really informative. 

Christine Short 

Thank you so much for having me. I enjoyed our conversation. 

Cassidy Clement 

Sure. So as always, listeners can learn more about an array of financial topics for free at ibkrcampus.com. Follow us on your favorite podcast network and feel free to leave us a  rating or review. Thanks for listening everyone.