3 Things You Need to Know About Earnings Season
This week, Maconomics is all about earnings season
It is mid-August, and earnings season has finally begun to wind down. Last week Home Depot, Walmart, and Target shot the lights out of their earnings call and caused the entire market to rally.
If all of that went over your head, you are in the right place. In this article and Ro$$ Mac’s latest Maconomics episode, we cover the basics of earnings season and what you need to know to navigate the next one like a pro.
When is Earnings Season?
Earnings happen every three months for a company. Most companies will report earnings around March (Q1), June (Q2), September (Q3), and December (Q4). This is not a strict rule, but just a general guideline.
For example, Best Buy Q4 starts at the beginning of November and ends in February. This makes sense because they want their fourth quarter to capture all of the holiday sales.
Companies in the same industry will also usually report around the same time. Best Buy will usually report within a similar time frame as other retailers like Target or Walmart. The same can be seen as Microsoft reports around the same time as Google and Facebook.
Who are the earnings for?
Earnings are for investors and analysts. Because we are lending these companies money by buying up their debt in the form of stock, we need to know what is going on with the company. Analysts want to know what is going on too because they will use it to make stock recommendations for their firms.
A vast list of things will be reported and discussed on the earnings call, but the essential things most people are listening for is what they did last quarter and what they expect to do in the next quarter.
Important Metrics
- Revenue Growth
- Earnings before taxes and interest (EBIT)
- Free Cash Flow
What do I want to hear?
What makes a earnings call good or bad is probably your next question.
Companies are graded on how they did compared to the expectations of the analysts. In general, what causes stocks to go up or down is speculation on what companies will report on their earnings call.
Let’s say Company A reported earnings and they reported revenue grew by 5% compared to the same quarter last year. That sounds pretty good, right? But if the company had historically been growing at 20% year over year, the analysts would have been expected the company to grow at a similar rate. Even though the company improved, it did not meet expectations, which could cause the stock to fall.
Analysts are not the only ones with expectations. Companies also announce their expectations of of future performance. This is called guidance. When a company has a great quarter that beat analyst expectations and they say we expect even more growth in the future that is called a beat and raise. That can cause a stock to rocket up in price.
The Takeaways…
You probably learned more than what you bargained for with this article, but you can never have enough knowledge when it comes to investing.
- Earnings happen every three months.
- Earnings inform investors about what is happening at the company.
- We want to hear a company Beat Expectations and is Raising Guidance.
This article is for informational purposes only. If you have specific questions around your financial situation, be sure to reach out to a financial professional.
