AIM: How Do You Interpret an Earnings Announcement?

1. AIM: How Do You Interpret an Earnings Announcement? Think About It: list all the factors that a company must consider when determining if they made a profit or loss

2. What is an Earnings Announcement? • Earnings Announcement • An official public statement of a company's profitability for a specific time period, usually quarterly • Includes their critical information about sales figures, revenues (how much $ they took in), and overall earnings. • Typically made on a specific date during earnings season • The months immediately following the quarter-ends of the year (Q1-March 31, Q2 – June 30, Q3 – September 30, Q4 – December 31) • Earnings usually announced late in the months of January, April, July and October

3. How Do Earnings Affect a Stock Price? • Before the official announcement is made equity analysts will estimate what a company’s earnings will be. • They use public data & insider information to assist their earnings forecast • Like weather forecasters analyst estimates can be incredibly off-the-mark, and can rapidly adjust up or down the days leading up to the announcement • This artificially inflates the share price up or down based on speculative trading. 

4. How Do Earnings Affect a Stock Price? • Speculative trading: Buying or selling of stock based on an educated hunch or feeling with no solid data to support the purchase. • Speculative trades are usually short term (a few days, or weeks) • When the company has been profitable leading up to the announcement, their share price will usually increase. • If expectations are met or exceeded the price will usually increase • If earnings are below expectations the stock will decrease

5. What Makes up Earnings? • Revenues - amount of money that is brought into a company by its business activities • Expenses – Costs of doing business • What are some expenses that a business may incur? • Land, Factories, Labor, Materials, Any costs of production of goods and services • Operating Income (aka Operating Earnings) – The difference between a company's operating revenues and its direct expenses (except taxes) tied to those revenues. • Assesses company’s core business profitability • Important aspect of earnings

6. What Makes up Earnings? • Sales – Total sales from operating the business - Analyzed a few ways • Total sales for quarter compared to same quarter last year for manufacturing and production of consumer goods companies • Name some examples • Year-over-year: Calendar years compared to previous year • 2011 total sales or revenues compared to 2012 • “Same store” sales often compared to same quarter last year in retail and restaurant industries • List some examples

7. What Makes up Earnings? • EPS – (Earnings per share) is estimated by top market researchers and analysts before announcement • When companies come in under expected earnings the stock falls • When it outgains earnings estimates the stock price rises • Calculated by: • Net Income / Shares outstanding

8. What Makes up Earnings? BWLD Q4 2012 Earnings: http://www.jagsreport.com/2013/02/buffalo-wild-wings-bwld-posts-quarterly-earnings-results-misses-estimates-by-0-05-eps/