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Earnings releases vs filings

When a company reports quarterly earnings, it typically issues a press release first. The press release announces the headline numbers—revenue, profit, earnings per share—and includes prepared remarks from management about why the results were what they were, what the outlook is, and what strategic initiatives are underway. Hours or days later, the company files its official 10-Q with the SEC, which includes the same financial statements but also more detailed notes, risk disclosures, and management discussion.

The press release is marketing. The filing is accountability. The press release is designed to frame the earnings in the most favorable light. The filing is designed to be comprehensive and (to the extent possible without lying) disclose material information. Understanding the differences between what the earnings release emphasizes and what the filing reveals is essential to seeing through company spin.

Spin and selectivity in the press release​

An earnings release is not required by law; it is a voluntary disclosure that companies choose to make to manage their narrative. Because it is voluntary, companies have tremendous discretion in what they emphasize and what they downplay.

If a company's profit is down ten percent but its revenue is up five percent, a skillful press release will emphasize revenue growth while burying the profit decline. If a company's growth is slowing but one particular segment is accelerating, the press release will emphasize that segment. If a company's profit includes a large one-time gain from selling a subsidiary, the press release might highlight "adjusted profit" (excluding the one-time items) rather than the reported profit number that includes the gain.

Companies also have discretion over what metrics they report. If a company's profit is down but its "free cash flow" is up (they define it as cash from operations minus minimal capital expenditures), the press release will report free cash flow prominently. Different companies define free cash flow differently, and management chooses the definition that makes the company look best. Non-GAAP measures (any financial metric calculated outside of standard accounting rules) are particularly subject to this manipulation.

Management guidance (forward-looking statements) in the press release is also carefully managed. A company that has missed guidance in the previous quarter might provide very conservative guidance this quarter, making it easy to beat next quarter and look good. A company that is facing headwinds might be vague about guidance, using words like "challenging environment" rather than committing to specific numbers.

The filing forces full disclosure​

The SEC filing (10-Q or 10-K) includes the same income statement, balance sheet, and cash flow statement that the company reported in its press release. But it also includes:

  • Detailed notes explaining accounting policies, significant estimates, and changes in accounting
  • Segment reporting breaking down revenue and profit by business unit
  • Management's discussion of quarterly results, including analysis of changes in revenue, profit margins, and cash flow
  • Risk factors and forward-looking statements
  • Detailed disclosures of related-party transactions, contingent liabilities, and other obligations
  • Information on executive compensation and corporate governance
  • Auditor's report (for the 10-K)

The filing is comprehensive in a way the press release is not. If there is bad news that management does not want to highlight, it will often be buried in the filing rather than in the press release. An investor who reads the press release and ignores the filing will miss important details.

Comparing the two: what to look for​

When earnings are announced, read both the press release and the filing. Compare what is emphasized in the press release to what you see in the filing. If the press release highlights one metric while downplaying another, ask why. If the press release does not mention a particular business segment, look at the segment reporting in the filing to see if that segment is struggling.

In particular, look for:

  • One-time items: The press release might report "adjusted profit" excluding one-time gains or losses. The filing will show the actual GAAP profit including these items. If one-time items are large, they distort comparisons.
  • Segment performance: The press release might mention the company's largest segment but not mention smaller segments. The filing shows all segments. If a small segment is unprofitable or declining, the press release might not mention it.
  • Changes in working capital: The press release focuses on profit. The filing shows changes in receivables, inventory, and payables that affect cash flow. A company can be profitable but cash-flow negative if working capital is deteriorating.
  • Customer concentration: The press release does not typically mention if revenue is concentrated in a few large customers. The filing might disclose this in the notes.
  • Guidance changes: If management is revising guidance, the press release announces it. The filing explains the reasons. Did management miss expectations because the market is weak or because the company is losing share?

Forward-looking statements and safe harbor​

Both press releases and filings contain forward-looking statements—management's beliefs about future events. Forward-looking statements typically include words like "expects," "believes," "will," "should," or "may." These are not facts; they are predictions.

SEC rules provide a "safe harbor" for forward-looking statements, meaning that companies cannot be sued for forward-looking statements that turn out to be wrong (as long as they were made with a reasonable basis). This creates an incentive for management to make bold forward-looking statements without much constraint. An earnings release full of optimistic forward-looking statements might not withstand the scrutiny of actual business performance.

When reading forward-looking statements, ask: are they specific and measurable, or vague? "We expect revenue to grow ten percent next year" is specific. "We expect a strong outlook for growth" is vague. Vague forward-looking statements often signal management uncertainty.

Non-GAAP metrics: caveat emptor​

An increasingly common feature of earnings releases is non-GAAP metrics. Companies report their official GAAP profit, but they also report "adjusted profit" or "operating profit" that excludes certain items. The SEC allows non-GAAP reporting, but requires that companies present the GAAP numbers with equal or greater prominence and explain how the non-GAAP numbers differ from GAAP.

In practice, companies often emphasize non-GAAP metrics and downplay GAAP metrics. If a company's GAAP profit is down twenty percent but non-GAAP profit is up five percent (because large one-time charges made GAAP profit look bad), management will typically focus discussion on the non-GAAP number.

Non-GAAP metrics are not inherently misleading, but they are designed to show the business in the most favorable light. Different companies define non-GAAP metrics differently, making comparisons across companies difficult. As an investor, look at both the GAAP and non-GAAP numbers, understand what items are being excluded, and decide whether those exclusions make sense for your analysis.

The filing is where accountability lives​

The bottom line is this: a press release is what management wants you to know. A filing is what you are legally entitled to know. A savvy investor reads both but trusts the filing more. If there is a discrepancy between the narrative in the press release and the details in the filing, the filing reflects reality more accurately.

Many investors never read beyond the headline numbers in the press release. Professional investors read the filing carefully, comparing it to previous filings to spot changes in accounting, watch for deterioration in quality of earnings, and understand the true drivers of profitability. This discipline separates those who see what companies want them to see from those who see what is actually happening.

Articles in this chapter​