Those who trade off of corporate events know that when a company delays the release of their earnings it's typically because there is bad news to report.
If you have been reading this blog for the past month or so, or are well versed in the academic research on the subject, you would know that there is some science (and some art) around when companies will release their quarterly earnings.
As of today, approximately 94% of the companies that Wall Street Horizon tracks have announced their earnings for this quarter. What may surprise you however is that only 85% of these companies were announcing their fiscal Q3 2015 results and only 87% had a fiscal quarter end date of September 30, 2015.
Given that companies are not required to host a conference call or webcast to discuss their quarterly financial results, I wondered whether there were any companies that might host a call when the company had good news to report, and not host a call when the company had bad news to report. Here is what I found when looking at the behavior of 978 Fortune 1000 companies going back eight quarters to Q3 2013 . . .
With stock buybacks reaching historic levels in the U.S., Reuters published a very interesting piece on the subject yesterday called The Cannibalized Company. What their research shows is that many companies including HP, IBM and 3M, are spending more on buybacks and dividends than they are on R&D and other forms of capital spending. And what the critics are saying is that while these financial maneuvers may produce short-term gains for shareholders, in the long term they will cannibalize innovation, slow growth and harm U.S. competitiveness.
Over the last couple of years, we’ve seen many independent academic studies including one by Eric So, MIT and another by Joshua Livnat, NYU Stern and Li Zhang, Rutgers, that have concluded that alpha can be generated by trading on earnings date revision data from Wall Street Horizon.
The majority of publicly traded companies pre-announce when they will release their quarterly earnings results. By doing so shareholders, analysts, institutional investors and anyone else interested in the company's financial performance, can get online and wait for that moment when the company's 10-Q gets filed with the SEC and the press release comes across the wire.
This past Monday, November 2, 2015, was the first trading day for the two new Hewlett Packard companies, HP Inc. (NYSE: HPQ) which is operating the PC and printer businesses and Hewlett Packard Enterprise Co. (NYSE: HPE) which is operating the business software, hardware and services businesses. As with all spinoffs, there was a series of corporate events leading up to Monday when the two companies started trading independently. And as the following chart shows, there was significant price volatility around these events that an informed investor or trader could have taken advantage of . . . or avoided altogether.
Previous research has shown that the attention constraints of human traders (investors and market makers) has lead to systemic effects on stock prices. The less attention there is on a stock, the less efficient that stock's price will be to a negative earnings surprise, for example.
If you are reading this blog post, chances are good that you know what an earnings date is. But in case you don't, it's the date on which a public company makes an official statement regarding its profitability for a specific time period, typically a quarter or a year. Most financial professionals pay close attention to company earnings announcements for the obvious reason of wanting to know how well a company has done relative to their previous financial performance, analyst estimates or their peers. A subset of people however pay very close attention to the actual "date" of the earnings announcement because as academic research has shown, firm-initiated revisions to earnings announcement dates can predict a firm's future earnings news and provide a signal for superior investment returns.