Earnings Season Boot Camp

Can you handle the quarterly deluge of data? If not, sharpen your skills with TheStreet.com.

By TSC Staff July 23, 2008

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The following are key tips from TheStreet.com to help you decipher the forthcoming deluge of data.

But First, From TheStreet.com TV...

Time to Boot Alcoa From the Dow (Mar. 6)

Simon Constable explains why the aluminum giant isn't fit to remain in the exclusive club of 30 leading industrial firms.

Content Continues Below

To watch the video, click the player below:

From The Finance Professor: Beginner's Guide to Earnings Calls:

Step 1. Preview the Call

Note the benchmarks and metrics: This is the most important part of the preview phase. You need to ascertain Wall Street analysts' consensus and range of estimates for EPS (earnings per share) and revenue. See how these consensus estimates have changed over the period of time since the last earnings release.

Also, obtain the expectations for company-specific or industry-specific metrics such as same-store sale comparisons ("comps" in Wall Street vernacular), gross margins, unit sales, traffic acquisition costs and other metrics. Integrate into this analysis any preannouncements (good or bad) or intraquarter press releases, business updates, sales statements, new product releases, management changes, regulatory or legal investigations and other corporate developments or initiatives.

Read the full article.

From Five Missteps to Avoid in Earnings Season:

2: Not Considering the Future

We are conditioned to focus on the company's most-recent results, which frequently zero in on EPS, revenues, margins or unit sales. So much energy is expended in trying to model-up (see earnings estimates) these results that the future is often an afterthought. However, some of the basic tenets of security analysis dictate that the value of a company is the present value of its future stream of earnings and dividends.

All too often, a company reports a fine quarter, beating analysts' consensus, but then a few minutes later confesses that the following quarter or year will not be all that it was cracked up to be and provides disappointing guidance.

The current results will send a false buy signal to the uniformed investor. What will really make the stock move will be the disappointing guidance. Be careful. Reserve your judgment on a stock until both the current results and the future guidance are in hand.

Read the full article.

From Conference Calls: The Good, the Bad, the Misunderstood:

Good: Apple, Research In Motion and Dick's Sporting Goods

It's hard to say which one of last quarter's end of 2007 good conference calls can be regarded as the best (because there are several really good ones). However, three calls do stand out in my mind: Apple (AAPL), Research In Motion (RIMM) and Dick's Sporting Goods (DKS). All of these companies' quarterly reports and earnings conference calls delivered affirmation to the bulls.

Here a few characteristics that each of these calls shared:

Reported better-than-expected results for the most recent quarter.

Provided robust guidance for the upcoming quarter.

Quelled any concerns regarding issues that may have lingered with the naysayers, particularly that these companies would be adversely affected by a slowing consumer or economy.

Demonstrated opportunities for continued future growth.

Caught the short-sellers off guard, with stocks spiking significantly the day after the earnings announcements.

Read the full article.

Plus, don't miss TheStreet.com'sEarnings Releases section, which features Webcasts of conference calls.

From To Guide or Not to Guide: A Look at Earnings Guidance:

Using the First Call Company Issued Guidelines (CIG) and Factiva news databases, we compiled a sample of 222 firms that stopped giving guidance between the first quarter of 2002 and the first quarter of 2005, along with a sample of 676 guidance maintainers. "Guidance stoppers" were firms that issued guidance for at least three out of the four pre-event quarters, but gave no guidance for any of the four post-event quarters. Those that provided guidance for at least three out of the four quarters in both the pre- and post-event periods were termed "guidance maintainers."

First we examined the financial reasons for stopping guidance. Compared with the guidance maintainers, we found that guidance stoppers in each quarter before they stopped guidance reported losses and earnings declines (compared with the year-before quarter) more frequently, while guidance maintainers met or beat consensus forecasts more frequently. Compared with the overall population of U.S. firms, guidance stoppers performed worse in each of these three areas while guidance maintainers performed better. More important, we found that as the stoppers approached the event quarter, they increasingly suffered losses, earnings declines, and a failure to meet or beat analyst consensus. This pattern was reversed for the maintainers.

Read the full article.

To stay up to date on the current earnings season, don't miss the "Earnings Watch" stories on TheStreet Picks.