The business world is divided into four reporting periods called
quarters. For most companies, these are evenly divided by the calendar year; 1st quarter January through March, 2nd quarter April through June, 3rd quarter, July through September, and 4th quarter, October through December. Many companies are seasonal in nature, such as retailers that typically generate far greater sales in the 4th quarter than any other. (Note that this isn’t always true – companies such as AutoZone have a quarter structure that does not line up with the calendar and one of which includes sixteen weeks, making it disproportionately important for earnings. It is extremely important that you know the relative weight of one
quarter versus another when investing in a stock.)
After the end of each quarter, the company’s accountants furiously begin to put together the earnings releases and SEC filings detailing revenue, costs, and profits. They then report these in conference calls and press releases. This period, one month following each quarter (typically January, April, July, and October), is known on Wall Street as “the earning season”.
Years ago, professional money managers and hedge funds could know what was coming beforehand by talking to management on private conference calls. Upon the passage of Rule FD (for “fair disclosure”), this was forbidden. The theory is that all investors, no matter how small, should be entitled to the same information as the largest and wealthiest. The result was that analysts, and small investors alike, are required to learn the results at the same time, causing a level playing field but far greater fluctuations as the impact of these decisions hit the market.
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