When you have good news, do you like to tell it yourself or let someone else have all the fun? What about when you have bad news? Would you rather choose the words carefully or let a stranger blare it from a loudspeaker?
Publicly traded corporations are required to report their quarterly earnings to shareholders and regulatory agencies, regardless of whether the news is good or bad. But rather than letting analysts alone spread the word, many companies announce their earnings results through press releases, conference calls, and the Internet.
Understanding why companies issue earnings reports can reveal important clues about the financial markets. Most firms make public announcements within one day of their quarterly report date, but some may issue guidance several days or weeks ahead of time. Here are some possible reasons why.
Timing: Quarterly report dates are usually set by the company’s fiscal calendar. A company can better control the timing by preannouncing earnings results on a day of its choosing. When the news is good, an early announcement may help boost the stock price right away. When the news is bad, a preannouncement can help the company get a jump on putting negative results in the past and moving ahead with corrective action.
Control: Leaving analysts to pore through quarterly results and publish their findings may not always result in a message the company is comfortable with. Although analysts will likely weigh in, the company can help shape public perception by announcing its own earnings results.
Attention: Because there are thousands of publicly traded companies, not all are able to capture the media’s attention. Earnings announcements can help a company draw attention to itself. Earnings can be a key to understanding the market’s behavior and an individual company’s performance. Please call if you have questions about earnings reports or your particular holdings.
Meeting earnings goals
Meeting the earnings estimates is made easier for a company by the fact that they’re not set in a vacuum—analysts rely heavily on guidance from companies to form their forecasts, and companies have in recent years figured out that it pays to guide the analysts to a lower rather than a higher number. At least partly as a result of this expectation interplay, the price of missing a quarter has risen sharply, particularly among high-priced growth stocks. In the growth stock fraternity, “missing by a penny” now implies the height of corporate boneheadedness—that is, if you couldn’t find that extra penny to keep Wall Street happy, then your company must really be in trouble, and since missing by a penny is already going to send your stock plummeting, you’re better off missing by a dime or two and saving those earnings for the next quarter.