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Between the Lines: To Everything There is a Season

All investors use insights, trends, and data from across the globe to help them make decisions. Between the lines is an easy way for you to understand how a current topic might be impacting markets and influencing your investments.

Company earnings season occurs four times a year. It’s one of the biggest events of the investment calendar but very few private investors know what it means, when it occurs, and what the outcome has to do with their investment returns.

The changing of the seasons

Earnings season is the period when listed companies release their financial data including information on company revenues, sales, profits, and margins as well as more granular details of the underlying business, its liabilities, and its forecasts for future revenue growth.

In recent years, each season has begun in earnest in the second week of the new quarter when the US banks start to report. Meanwhile, as US retailers operate with financial quarters that end a month later, their announcements tend to signal the end of earnings season.

The most notable impact of earnings season is that markets generally become more volatile. This is because each season boils down to a comparison of how every listed company performed versus how it was expected to fare by analysts. When a company’s results exceed those forecasts (referred to as ‘a beat’), miss them significantly, or the latest commentary from a company’s management takes the market by surprise, then the stage is set for potentially wild share price swings.

This season’s key trends

By 27 February 2023, some 96% of the largest US companies had reported their earnings. The aggregated results show that the earnings per share (the company’s profit divided by the number of shares issued) growth rate for these companies came in at 4.7%, beating the forecast of 3.2% by almost 50%. Of the companies reporting, 68% beat their earnings per share expectations. Within this, 58% of US companies beat sales expectations meaning that, in aggregate, companies reported sales that were 1.9% above expectations.

In Europe, 65% of the top 600 companies had reported and, in aggregate, 57% reported sales ‘beats’ with 44% delivering a positive surprise on earnings. Whilst in the UK, due to differences in financial year-end dates, only 46% of the UK’s 100 biggest companies had reported with 56% of these delivering a positive surprise on sales and 44% reporting a positive earnings surprise or ‘beat’.

Earnings season offers investors some transparency as to how the companies in which they invest are performing while shining a light on key trends in each industry as companies in the same sector tend to report at around the same time. Company earnings data also provides a snapshot on the pace of economic growth.

Overall, the fourth quarter earnings season, which ended in late February, was another surprisingly strong period for company earnings, despite the backdrop of higher inflation and rising interest rates.

Key takeaways

  • Earnings season is the period when listed companies release their financial data.
  • It happens four times a year and (generally) begins in the second week of each new quarter.
  • The latest earnings season was another surprisingly strong period for company earnings.

All Images and content shown are reproduced with permission from Quilter Financial Planning.