Understanding Earnings Season: Definition and Mechanics

Understanding Earnings Season

Earnings season marks the period when most publicly traded companies disclose their quarterly earnings to the public, typically commencing in the month after the closure of major firms’ fiscal quarters. This occurrence commonly falls within January, April, July, and October, allowing companies time to compile and release their financial reports post each quarterly accounting period.

**Key Insights**
– Earnings season typically initiates in the month succeeding major companies’ fiscal quarters: January, April, July, and October.
– It usually spans around 6 weeks, after which the frequency of earnings reports reverts to non-earnings season levels.
– Earnings season holds significant importance for investors and stakeholders reliant on analysts’ evaluations regarding a company’s earnings and the assessment of its stock’s intrinsic value.

Timeline of Earnings Season

The unofficial commencement of earnings season is often marked by Alcoa’s (NYSE: AA) earnings release, being among the first major firms to divulge earnings post each quarter’s closure. As other public companies progressively release their earnings reports, the season gains momentum. While there isn’t a defined endpoint, earnings season is generally considered concluded when most major corporations have unveiled their quarterly earnings, typically around six weeks post the start.

For instance, during the fourth quarter, a rise in earnings reports is observed in the second week of January, with Alcoa often leading the way. Subsequently, approximately six weeks later, around the end of February, the pace of earnings reports subsides to pre-earnings season levels. The swift transition between seasons is evident; for example, the first quarter’s earnings season commences in early April, just over a month post the fourth quarter’s closure.

While most companies align with the standard calendar year, some major corporations operate on fiscal years that differ from the calendar year setup. Walmart (NYSE: WMT), for instance, concludes its fiscal year on January 31. This extended fiscal calendar allows for comprehensive profit evaluation post the holiday season, leading to Walmart’s earnings typically being disclosed towards the tail end of a typical earnings season.

Impact of Earnings Season on Investors

Earnings season stands as one of the most dynamic periods for market participants and observers, with nearly all major publicly traded companies unveiling their previous quarter’s performance. Analysts and investors typically align their assessments and projections with specific quarters or fiscal year conclusions, making the disclosed results during earnings season substantially influential on stock performance.

As earnings season nears, numerous analysts engage in intrinsic valuations to gauge if a company’s stock is over- or under-valued. This analysis aids investors in decisions to buy, sell, or hold stocks. Fundamentally, analysts evaluate both qualitative factors, such as business models and governance, and quantitative aspects like financial ratios. Valuation tools like the discounted cash flow model, reliant on free cash flow and weighted average cost of capital (WACC), are commonly utilized for this purpose.

Insights on Earnings Calls

During earnings season, companies conduct earnings calls, allowing the public to tune in and listen to the executive team discussing the quarterly results. These calls typically cover financial performance, management changes, corporate governance updates, legal matters, and industry shifts, providing context to the company’s results. Earnings calls are standard for publicly listed companies, with many offering recorded calls or presentations on their corporate websites post the live event for accessibility.

Smaller companies with limited investor interest may not host earnings calls. However, most companies furnish phone recordings or presentations of the call for those unable to attend. Accessing such information is also facilitated through the SEC’s EDGAR system, a comprehensive resource for all earnings reports.