Earnings Season Explained

Four times a year, thousands of public companies report their quarterly results over a few weeks. This period is called earnings season. It brings a flood of new information about revenue, profits, margins and outlooks, and it is often when individual stocks make their biggest moves. Knowing how earnings season works, from the calendar to the structure of a report, helps traders prepare, manage risk and spot opportunities.

The calendar#

US companies with calendar fiscal years report roughly:

Large US banks usually report first, a few weeks after quarter end, which unofficially opens each season. Many companies have fiscal years that do not match the calendar, so some reports arrive outside these windows.

Reporting rules and timing#

US public companies must file quarterly reports (Form 10 Q) within 40 to 45 days of quarter end and annual reports (10 K) within 60 to 90 days, depending on their size. Most release earnings by press release first, either before the market opens or after it closes, followed by a conference call. See Reading Financial Statements.

What a typical report includes#

Consensus estimates#

Analysts at brokers and research firms publish forecasts for revenue and EPS. Data providers combine these into consensus estimates, usually the mean or median. Results are judged against consensus, not against last year. Some investors also watch "whisper numbers", unofficial expectations that may differ from published consensus.

Market reactions#

• Implied moves: options price an expected move around each report. See Earnings Trading.
• Gaps: stocks often open far from the previous close. See Price Gaps and How to Trade Them.
• Sector read across: one company's results can move its peers and suppliers.
• Drift: stocks with big surprises have historically tended to keep moving in the same direction for weeks. See Earnings Reactions and Post-Earnings Drift.

What the season says about the market#

Aggregate data matter too. FactSet reports that, over many years, roughly three quarters of S&P 500 companies beat EPS estimates in a typical quarter, partly because companies guide conservatively and analysts lower estimates before results. A season where fewer companies beat than usual, or where guidance is widely cut, can signal a weakening economy.

Preparing for earnings season#

1. Know the reporting dates of companies you hold or trade.
2. Decide whether to hold through reports, and size for possible gaps.
3. Review consensus, guidance and implied moves.
4. Watch peers that report earlier for clues.
5. Plan post earnings trades based on reactions, not just headlines.

Frequently asked questions#

When is earnings season?#

Roughly mid January, mid April, mid July and mid October to the following month, starting a few weeks after each calendar quarter ends.

Why do stocks fall after beating earnings?#

Because markets react to expectations, especially guidance; a beat with weak guidance or a beat smaller than hoped can disappoint.

What is a consensus estimate?#

The average or median of analysts' forecasts for a company's revenue and earnings, used as the benchmark for results.

Next, learn what makes results surprise in Analyst Estimates, Surprises and Whisper Numbers.

Sources#

• FactSet, Earnings Insight