A preannouncement occurs when a company or individual announces something either prior to the time that they do it or prior to the time that they would normally announce it. Preannouncements can take the form of a press release, filing a form with the government, a conference call, or a webcast.
Corporate Earnings
The most common use of the term in the U.S. investing community is for a statement about
earnings Earnings are the net benefits of a corporation's operation. Earnings is also the amount on which corporate tax is due. For an analysis of specific aspects of corporate operations several more specific terms are used as EBIT (earnings before interes ...
that are materially different from the expectation of
financial analyst
A financial analyst is a professional, undertaking financial analysis for external or internal clients as a core feature of the job.
The role may specifically be titled securities analyst, research analyst, equity analyst, investment analyst, ...
s or from prior guidance given by the company. These preannouncements seem to have become more frequent in the U.S. since the effective date of
Regulation FD. On average, they are made about 20 calendar days before the scheduled announcement or
Earnings Call An earnings call is a teleconference, or webcast, in which a public company discusses the financial results of a reporting period ("earnings guidance"). The name comes from earnings per share (EPS), the bottom line number in the income statement d ...
.
There are now usually a few hundred such preannouncements every quarter.
The period during which preannouncements tend to be made is sometimes called the "confessional season" because so many of them are bad news.
It has been argued that in the U.S. a preannouncement of earnings during a quarter does not need to be furnished to the
Securities and Exchange Commission
The U.S. Securities and Exchange Commission (SEC) is an independent agency of the United States federal government, created in the aftermath of the Wall Street Crash of 1929. The primary purpose of the SEC is to enforce the law against market ...
(SEC) on a Form 8-K, but that a preannouncement after the quarter ends must be.
It has been suggested that potential litigation costs are one reason for announcing bad news early - the company may be at risk of being sued for having known the bad information, not having revealed it, and causing a loss to those who bought stock after the company knew. There are indeed more preannoucements of bad news than of good news, and the number of preannouncements increased in the mid-1990s in the wake of an increased threat of shareholder lawsuits. Firms in industries more subject to litigation are more likely to preannounce. The more analysts cover a stock, the more likely the firm is to preannounce, and good preannouncements average releasing half the good news while bad preannouncements average releasing all of the bad news.
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Other Types
* The first articl
hereis an example of an unusual preannouncement of bad news about expected government action.
* Companies trading in the U.S. are required to preannounce
stock buyback programs before they begin buying shares, and then to report on such programs in their quarterly and annual filings.
* There have been proposals that insiders be required to preannounce all of their stock trades. They are currently required to preannounce certain types of stock trades.
References
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