Earnings season: What you can learn from corporate reports

Each quarter, publicly traded companies must disclose their financial performance to regulators and shareholders. The first two quarters in 2019 for U.S. companies included in the S&P 500 index suffered earnings declines due to rising wages and higher material costs. Tariffs imposed on trading goods were partially to blame. Generally speaking, earnings reports reflect past performance and may have little to do with future results.

What you hear during earnings season a lot is the company’s EPS. EPS stands for earnings per share, which represents the portion of total profit that applies to each outstanding share of company stock. The media likes to focus on whether or not companies meet, beat or fall short of the estimates of Wall Street analysts. EPS can have a major effect on a company’s stock. A company can beat the market by losing less money than expected, or can make billions of dollars in profit and still disappoint investors.

To try and help manage expectations, companies will issue profit warnings or positive revisions that could prompt analysts to adjust their estimates. Remember, media hype surrounding earnings surprises can sometimes lead attention away from the big picture that could be revealed in a company’s quarterly report. Sales growth, new products, global economic conditions and government policies are factors that can all affect a company’s longer-term prospects.

The return and principal value of stocks fluctuate with changes in market conditions. Shares, when sold, may be worth more or less than their original cost. The S&P 500 is an unmanaged group of securities that is considered to be representative of the U.S. stock market in general. The performance of an unmanaged index is not indicative of the performance of any specific investment. Individuals cannot invest directly in an index.