What is earnings season?
Listed companies publish their results periodically, and at certain times of the year many results arrive close together; that stretch is called earnings season. During it, company-specific news moves individual shares more than usual, and the results appear in the disclosures.
Compared with expectations
Before results, traders hold differing expectations, built on the company's past results, sector news and analyst reports where they exist, and part of them may already be reflected in the price. Where an analyst consensus exists it can serve as a reference; where it does not, there is no single official "expected" figure. The gap between the result and the expectation, called the "surprise", is one of the most important influences on the price reaction, alongside earnings quality, one-off items, management's outlook and the state of the market itself.
Look beyond the profit figure
Net profit alone can mislead. First, look for one-off items, such as a land sale or a currency gain: they can swell this year's profit without repeating. Second, check sales and the profit margin, which show how the core business is doing. Third, read what the company says about the coming period if it says anything, because the market often cares more about the future than the past.
Follow the results
The earnings page gathers company results, and the disclosures page holds each company's original statement.
Check yourself
1. The market expected a profit of 80 million and the company reported 95 million. What is that?
2. A company's profit jumped this year because it sold land. What should you ask?
Summary
- The gap between the result and the expectation is one of the main drivers of the reaction, not the result alone.
- Look for one-off items, and check sales and the margin.
- Do not judge by the first reaction or the headline; read the disclosure itself.