Learn the stock market › Read an earnings report › Lesson 6 of 7
Profit warnings and guidance
Why companies have to tell everyone
A listed company cannot share important news with a few people first. Under the SEC's Regulation FD, when a company discloses material nonpublic information to analysts, investment firms or shareholders, it must make it public at the same time, or promptly if the disclosure was not intended. So when a company sees that results will fall well short of expectations and wants to say so, it does it in a public announcement, often called a negative preannouncement or profit warning. It can also go the other way, when results will be much better.
A warning can come on any day, far from the earnings calendar. It lowers expectations ahead of the report, so the report itself can then beat the lowered estimate.
Guidance
Guidance is management's own outlook: for instance a range for next quarter's revenue or the year's earnings per share. Many US companies give it with each report, and they can raise, lower or withdraw it. Analyst estimates are something else: outside forecasts, often built on the company's guidance.
Lower guidance can move the stock more than the quarter that has passed, because the price is about future earnings.
What happens when earnings fall short
We hold no list of profit warnings. The closest thing we can count is reports where earnings per share came in below the analysts' average. Among 478 reports from the 20 largest US companies since 2020, that was 78, or 16%.
| Missed the estimate by | Reports | Fell that day | Median move |
|---|---|---|---|
| 0–5% | 32 | 69% | −1.8% |
| 5–10% | 13 | 62% | −3.3% |
| More than 10% | 33 | 76% | −3.3% |
| All | 78 | 71% | −2.7% |
In 33 reports, earnings were more than 10% below the average. The stock fell 76% of the time, with a median move of −3.3%.
It goes the other way too. On Feb 1, 2023, Meta's earnings missed the average by 21%, and the stock still rose 23% that day. As in the previous lesson, earnings per share was not the whole report.
The move runs from the close before the report to the close of the first day the market could trade on it, as in the previous lesson.
Test yourself
A company warns in September that profit will be lower. In October its earnings come in slightly above the analysts' average. How can both be true?
Sources
- US Securities and Exchange Commission, 17 CFR 243.100, Regulation FD, general rule regarding selective disclosure, read on 5 November 2026.