What is an earnings report?
In one line: An earnings report is a company's update on its sales, costs and profit for the last quarter, released four times a year.
When they come out
US public companies report every quarter. They file results with the SEC (the quarterly form is a 10-Q, the yearly one a 10-K) and usually release a short summary first.
Most report either before the market opens (often around 7 to 8 am ET) or after it closes (often a few minutes after 4 pm ET). A call with analysts usually follows.
A simple example with numbers
The key number is EPS, earnings per share: profit divided by the number of shares.
- Analysts expected EPS of $1.20.
- The company reports $1.30.
That's a beat of 10 cents. If it had reported $1.10, that's a miss. Sales (revenue) are compared to estimates the same way.
Why the stock can still fall on a beat
Price reacts to the surprise and to what comes next. A company can beat this quarter and then say it expects slower sales ahead (its "guidance"). The stock may drop anyway.
Because most reports land outside regular hours, the next day's open often starts far from the last close. That's a Gap. More on the drivers in what moves stock prices.
Why it matters
- Gap risk. A stop doesn't protect you from a gap. If the stock opens below your stop, you get filled at the open, not at your stop. See Slippage.
- Big swings. Moves of 5% to 15% the next day aren't unusual for some stocks.
- The P/E ratio updates with each report, since earnings change.
A common mistake
Holding a trade into earnings without knowing. Check the date before you enter. Most broker apps and financial sites list the next earnings date. Many traders simply close or skip trades in that stock until the report is out.
Add your watchlist's earnings dates to your trading plan each week.
Questions
How often do companies release earnings?
Four times a year in the US, once per quarter. The fourth-quarter report usually comes with the full annual report.
What is earnings season?
The few weeks after each quarter ends when most big companies report. In the US it usually starts in mid-January, April, July and October.
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