Earnings season, explained

Four times a year, listed companies publish their results and the Markets section fills up with words like beat, miss, guidance and after-hours. This guide explains what is actually being reported and how the market decides whether results are good or bad.

When it happens

Most companies close their financial quarters at the end of March, June, September and December. They report a few weeks later, so earnings season roughly runs from mid-January, mid-April, mid-July and mid-October, for about six weeks each time. Large US banks usually go first, followed by big technology names, then everyone else.

Companies announce their reporting date in advance. Results are normally released before the market opens or after it closes, so the first price reaction happens in pre-market or after-hours trading, when fewer shares change hands and moves can be exaggerated.

The numbers in an earnings report

Figure	What it tells you
Revenue (sales, or "top line")	How much the business sold during the quarter.
Earnings per share (EPS)	Profit divided by the number of shares. The headline profit figure.
Margins	How much of each euro or dollar of sales turns into profit. Rising margins usually mean pricing power or lower costs.
Guidance	The company's own forecast for the next quarter or year.
Segment data	Results for each division, such as cloud versus advertising, or Europe versus the US.

Companies often report two profit figures: one following accounting rules (GAAP in the US, IFRS in Europe) and an "adjusted" one that excludes items management considers one-off. Headlines usually compare the adjusted figure with estimates, so check which one is being quoted.

Beat or miss: it's all about expectations

Analysts who cover a company publish forecasts for revenue and EPS. The average of those forecasts is the consensus estimate. When a headline says a company "beat", it means the result came in above consensus; "missed" means below.

What matters to the share price is the surprise, not the result itself. A company can grow profits 30% and still see its shares fall if investors were hoping for 40%. Sometimes investors also carry an unofficial, higher expectation (the "whisper number"), so a small beat can disappoint.

Why guidance often matters more than the quarter

The quarter that was just reported is already in the past. Investors care more about what comes next, so the company's guidance often drives the biggest moves:

• Raised guidance after a strong quarter usually pushes the stock up.
• A beat with lowered guidance often sends it down, because the future looks weaker than hoped.
• Withdrawn guidance signals uncertainty and is usually taken badly.

The conference call that follows the release adds colour: management comments on demand, costs and plans, and analysts ask questions. A single remark about slowing orders or rising spending can move the stock more than the results themselves.

Reading the season as a whole

One company's results tell you about that company. A whole season of results tells you about the economy:

• Are most companies beating estimates, and by how much compared with previous seasons?
• Are consumer companies seeing shoppers trade down to cheaper products?
• Are banks setting aside more money for bad loans?
• Are large companies raising or cutting investment plans, for example in AI and data centres?

When you see a headline like "Europe heads for its best earnings season in years", it summarises exactly this kind of tally.

Common traps

• Comparing the wrong profit measure. Adjusted and accounting EPS can differ a lot.
• Judging by the first minutes of after-hours trading. Early moves often reverse once the conference call starts or regular trading opens.
• Ignoring the base effect. Growth looks spectacular against a weak quarter from a year earlier.

Key takeaways

• Earnings season runs for several weeks after each quarter ends.
• Share prices react to results versus expectations, not to the results alone.
• Guidance and management comments often matter more than the quarter just reported.
• Taken together, a season of results is one of the best real-time reads on the economy. Follow it in the Markets section.