Our Blog: The Podium

Preannouncing Results: Analyzing Corporate Profit Warnings

Wall StreetTo preannounce or not to preannounce: Surely that is the question that stumps many management teams during the quarterly earnings cycle.

There are several reasons for a company to preannounce its financial results – that is, provide the Street with a preliminary, high-level understanding of what the company’s quarterly performance will be. Typically, a preannouncement is made in the weeks preceding the full earnings release and conference call. Management also may decide to update investors with preliminary results ahead of investor days, investment conferences and major acquisitions, so that it may speak about the most current financials and not violate Regulation Fair Disclosure.

The question is more complex than simply whether to make a preannouncement, however. Many considerations contribute to the decision on what information to include – and whether to produce an early release at all.

To get a snapshot of the prevailing trends and rationale for early announcements, we enlisted AlphaSense, a unique search engine that offers a newer standard for information discovery. AlphaSense uses a blend of advanced linguistic search and natural language processing algorithms, enabling research professionals to search, navigate and analyze corporate filings and other disclosures for critical data points.

Using AlphaSense, we looked at a sample of 59 preannouncement releases that had been issued in the U.S. in the first six weeks of 2016. We examined the rationale stated for issuing the announcement, the metrics the companies provided, the sentiment of the announcements, whether the companies provided/updated guidance, the presence (or absence) of reconciliation tables for non-GAAP guidance metrics and the amount of discussion the firms provided beyond basic financial data. In this post, we will focus on the rationale for releasing. 

Among our sample,

  • 37% explicitly stated that they were issuing preliminary results because they were updating their previous guidance,
  • 19% had not provided guidance, but our research showed us that they had missed or beaten analyst expectations and were presumably providing a warning to the Street,
  • 17% preannounced in conjunction with an acquisition announcement,
  • 12% issued the release prior to an investor event (conference presentation, 9%; investor day, 3%),
  • 7% issued in conjunction with the announcement of a share repurchase program, and
  • 2% related to an SEC investigation.

The remaining 5% of the sample offer no information as to the catalysts behind the release.

So why didn’t any of the companies that missed or beat the Street simply refer to the analysts’ consensus expectations? There are three reasons why the absence of any mention of analysts’ consensus estimates, whether it be in the final earnings release, a results preannouncement or any other type of management commentary, is best practice.

First, by commenting favorably on analysts’ estimates, management is essentially endorsing those estimates. What happens the next time an analyst changes his or her forecast? Will management comment again, and every time thereafter?

Second, by commenting negatively on consensus, management still creates an expectation it will provide updates on analysts’ estimates in the future. And if management does not comment on future estimate revisions, it presents a no-man’s land in which investors are left to decide for themselves whether management still disagrees with the consensus or implicitly agrees with the “Street,” given its lack of commentary going forward.

And third, the unspoken word here is “guidance.” Any comment on a third-party’s estimate or commentary regarding future company performance can be interpreted to constitute guidance. For companies that already provide their own guidance, commenting on third-party estimates creates a potential conflict if consensus and management guidance are not aligned. Companies that have a policy of not issuing guidance violate that policy by opining at all, and now they have created a situation they never wanted to be in in the first place.

This brings us back to our initial question: Should companies preannounce their financial results? By issuing an early announcement in a press release, companies advise investors and analysts of potential surprises ahead of the time stockholders normally would be expecting the news. This enhances goodwill with the investment community and may protect the stock against wider swings after an earnings estimate miss. By placing that announcement in a press release, companies fulfill the “broad dissemination” requirement of Regulation FD. This enables management to provide all investors with the same information and to guard against the news being released inadvertently to individual third parties.

In Part II of our preannouncement blog based on AlphaSense research, we will focus on the qualitative discussion of the results in the preannouncements and the financial metrics used, including issues surrounding the use of non-GAAP metrics.


David Calusdian, the executive vice president and a partner at Sharon Merrilloversees the implementation of investor relations programs, coaches senior executives in presentation skills and provides strategic counsel to clients on numerous communications issues such as corporate disclosure, proxy proposals, shareholder activism and earnings guidance.

Guidance, Disclosure Policy, CFO, Earnings Call, Earnings, Trends

Subscribe to The Podium!

Connect with your Investors

Establish a sincere connection with investors to communicate key messages during your Investor Day. Download our free e-book on effective presentation habits, and learn to deliver ideas with confidence and clarity.

Delivering Effective Presentations

When it's time for a change

Whether planned or sudden, it is crucial to communicate the succession of high-profile positions effectively. Download our three-part e-book and learn the best way to craft a plan for CEO, CFO and Board of Directors transitions.

Download Your Free eBook: Communicating Management Transitions 

Be Proactive, Not Reactive

With our new Proxy GamePlan, we create a year-round, data-driven strategic roadmap for effective shareholder engagement. Implement a best-in-class program rooted in a deep understanding of your company’s proxy practices, shareholder voting trends and peer landscape.

Learn More About Proxy GamePlan

Find Effective IR Counsel

Whether you’re seeking external IR counsel for the first time or evaluating your current provider, you need a firm that understands your strategy, adapts to your culture and tells your story. Download our free guide on how to assess the effectiveness of an investor relations firm.

How to Assess  an IR Firm

Activism Defense

No company is immune to shareholder activism. Sharon Merrill helps boards of directors and executive management teams identify the activist red flags lurking in your shareholder base, assess your governance risks and develop an action plan to prevent, detect and neutralize any threats. Download our free white paper, “Leveraging Institutional Shareholder Relationships to Reduce Activism Risk,” and learn how the best defense against activism is a strong offense.

Download Activist Defense White Paper

Captivate your Audience

Speaking persuasively is critical in today’s competitive business environment. Effective speakers use voice techniques and body language that project authority and credibility. Download our free e-book, “A Guide to Delivering Captivating Presentations,” for insight into good -and bad- presentation habits, and learn how to improve your skills.

Become a Persuasive Speaker 

Perceptions Matter

How do you ensure that investors clearly understand your strategy, growth drivers and market position? The most effective way is through a perception study. By periodically taking the investment community’s pulse you can avoid the knowledge gaps and misperceptions that hurt valuation. Download our free whitepaper, Why Perceptions Matter, to learn more.

Download your free copy of  'Why Perceptions Matter' 

Common Topics:

More topics