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[3 Examples] Why Earnings Season Really Matters

My team and I make a big deal about earnings season.

In just the last week, I explained my secret to quick earnings season profits…

I listed all the big companies reporting earnings over the next few days…

And then Alan Knuckman gave you 3 companies set to soar once they release their reports…

But today I want to back up.

Today, I want to explain why earnings season is so critical for investors like you, while also giving you a few real-world examples to get you caught up on the latest action.

And as you’ll see, keeping these insights in mind could make these last few weeks of earnings season your most profitable yet…

Here’s Why Earnings Season is So Important

If you’re unfamiliar, federal law requires companies to file quarterly reports that outline the company’s performance for investors.

The time period when the vast majority of companies release these reports — which usually starts a few weeks after each quarter ends — is called “earnings season.”

Included in these reports are four key elements:

  • Income Statement — Shows how much money a company earned/lost
  • Balance Sheet — Shows the financial strength of a company
  • Statement of Cash Flows — Summarizes the amount of cash entering and leaving a company
  • Management Discussion & Analysis — Provides commentary from company management about past results, future goals, and risks facing the company.

While financial news outlets will likely fixate on revenue and earnings-per-share figures from the income statement (which, don’t get me wrong, are still important), today I’d like to urge you to dig a bit deeper and look at the management discussion & analysis section in these reports.

That’s because this management discussion & analysis section details not only key specifics about an individual company, but it also gives key insights into the company’s industry and the economy as a whole.

In many cases, these broader insights can be much more valuable to you when deciding on whether it’s time to get out of the market, or add to your positions.

Let’s look at a few real-world examples from the past week to show you what I mean…

Hidden Insights in This Week’s Earnings Reports

Caterpillar Inc. (CAT) reported earnings results on Wednesday that missed Wall Street’s expectations. And with Caterpillar being by far the world’s largest heavy machinery manufacturer, you might think that our economic expansion is slowing which could foreshadow rough times ahead for our stock market.

But a look at Caterpillar’s management discussion & analysis section would actually show you that the company experienced record demand for construction and mining equipment, which proves the trends we talk about here at The Daily Edge are still strong.

The real reason CAT missed earnings were higher costs associated with tariffs and labor. (Keep in mind, we view tariffs as a short-term issue and rising wages are actually good for our economy due to the “Wealth Effect.”)

So to summarize, Caterpillar’s announcement was actually a good sign for our economy, which you wouldn’t have learned from just reading the headlines.

Visa (V) and Discover Financial Services (DFS) reported earnings earlier this week which also painted a bright U.S. economic picture. Companies like these are important to watch as they’ve proven to be a “litmus test” of sorts for U.S. and global consumer spending.

Getting to the details, both companies’ management discussion & analysis section alluded to the fact that a robust economy encouraged customers to spend more money which boosted fees.

Visa beat earnings expectations by 3.1%, while Discover beat earnings expectations by 10%. Keep in mind, this is on top of the very strong retail report that was announced last week.

The Coca-Cola Company (KO) also reported earnings that beat expectations this week which rocketed the stock to all-time highs!

Although this earnings report doesn’t shine too much light on the state of today’s economy — after all, consumers likely buy Coke products in good times and bad — this report does tie into another valuable trend we’ve been following here at The Daily Edge — the weak U.S. dollar.

As the U.S. dollar weakens compared to other currencies (mostly due to the Fed’s upcoming interest rate cut), U.S. companies that sell products abroad translate their foreign profits into more U.S. dollars. This is because it takes more dollars to equal one euro, yen, etc.

Trends like this are important to keep an eye on, because as the dollar continues to weaken, U.S.-based international companies like The Coca-Cola Company should continue to report strong earnings after translating their foreign profits into more U.S. dollars.

All these insights are things you wouldn’t have been able to learn by just looking at the “headline” figures that the mainstream financial media harps on.

To find the real insights — and the valuable economic points that they help explain — you must dig a little deeper into the management discussion & analysis section.

You can find this in the Investor Relations tab on a company’s website, or even by listening to the company’s earnings call with analysts.

Whatever the case, be sure to incorporate these important bits of information the next time you make an investment decision. Doing so could make these last few weeks of earnings season your most profitable yet!

Here’s to growing and protecting your wealth!

Zach Scheidt

Zach Scheidt
Editor, The Daily Edge
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Zach Scheidt

Zach Scheidt is the editor of Lifetime Income Report, Income on Demand, Buyout Millionaires Club, Weekly Squawk Box, Contract Income Alert and Family Wealth Circle — investment advisories dedicated to finding Wall Street’s best yields. He brings to the table impeccable investment management experience and a solid record of identifying oversized payout opportunities.

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