Quarterly Earnings Reports Explained: What the Numbers Actually Mean

Every publicly traded company is required to release its financial results every quarter. Ryan explains the four numbers investors pay attention to: revenue (total sales), earnings (what is left after expenses), profit margins (a measure of efficiency), and guidance (management's forecast for the next period). Guidance is often just as market-moving as the results themselves.

Ryan and Aaron discuss why there is real theater involved in these reports, with some companies treating them as polished presentations and others keeping it dry. The practical advice for long-term investors is not to overreact to a single quarter. One bad report from a company you hold in a diversified portfolio is rarely a reason to sell. Context and trend matter far more than any single data point.

Find "Your Fiscal Physical" the book on Amazon

If you have suggestions or feedback, please email us at: Podcast@AlchemyWealth.com

And, as always, Stay the Course!

Transcript

Copy

Welcome And Listener Support

SPEAKER_00 0:01

Welcome to the physical physical podcast. Join us to week is Risa Town with the founder of Alchemy Wealth Management and author of your physical physical, Ryan Nelson. Tune in to gain valuable insights and practical tips as we simplify complex financial concepts into digestible lessons. From budgeting to retirement planning, this podcast is your go-to resource for mastering financial literacy.

Aaron Hoisington 0:33

Welcome everybody. This week's episode of the Fiscal Physical Podcast. My name is Aaron. I am here with the founder of Alchemy Wealth Management, the published author himself. Find his book on Amazon, Fiscal Physical, Seven Keys to Becoming Financially Fit, or your Fiscal Physical. And uh Ryan Nelson, how are you, my man? Doing well. How about yourself, Aaron Hoisington? I'm doing well. Thank you so much. Um, yeah, appreciate everybody tuning in for this week's episode. Uh, as I mentioned, these uh mentioned on previous episodes, these drop every week. We'd love to have your support. If you guys have any questions, please email us at podcast of alchemywealth.com with any feedback, topics, anything you want to

What Quarterly Reporting Really Means

Aaron Hoisington 1:14

discuss. Uh and this week, Ryan, we are going to dive into the scorecard of a company. Um, so we you know, this topic is one I I I'm curious to to uh to pose to you. I've been really interested to get your you get your feedback on it. I I subscribe, I don't actually how know how I got signed up for this, but I I subscribe to a a weekly or a daily email through Yahoo, and it talks about like the state of the market and and all these different things. And sometimes if I'm feeling froggy, I'll like pop in and I'll check out like what's what's going on. And one of the things it always talks about is like who's reporting that day. It like mentions like oh Home Depot's reporting this day, or um, you know, they this company like reported and they missed their earnings or something along those lines. Like Netflix is coming up next week and talks about if they hit or didn't hit certain goals. Um, but I'm I'm curious what that actually all means. Like what how often people or companies have to report what that financial reporting entails, and like is it important or not, like in your eyes? So um I'm curious, curious of just a breakdown for the general public there about because I'm sure everybody's heard of like reporting or earnings and such too. So, but what does that actually mean?

Ryan Nelson 2:26

Yeah, so when companies go through their quarterly reporting, basically um they are releasing their financial results for the last quarter. Um, oftentimes they'll hop on like a uh a big public conference call and they'll have somebody at their on their team releasing these numbers to the public. So it's the first sort of view the public has of these numbers. And now a lot of companies will sort of do like a uh is it uh dog and pony show? What's the term? Yeah, that that's a term, yeah. And uh so they'll kind of um you know make a big presentation out of this. And it's sort of turned into more um like a sales pitch, I think, in my personal opinion, in some ways, where they are communicating uh they're telling a story to the public. So it might be, hey, you know, this number's down, this number's up, this is what we see happening in the future, and they're trying to figure out a way to present it in such a way that spins their company in the best light. Um, and so there's yeah, there's a lot of sort of fanfare, so to speak, with some of these. Um, and some of them are known for being um more like flashy, if you will. Um, but nonetheless, like quarterly reporting is that time um where finance where companies report their financials um kind of to the public. So it is a scorecard.

Revenue Earnings Margins And Guidance

Ryan Nelson 3:46

The numbers that that uh people are kind of usually paying attention to or watching are what's the company's revenue, what's the company's earnings, what's the company's profit margins, and what's the guidance of the company. So revenue is just the total sales, based on basically how much money the company brought in before expenses, before anything like that, just how much total money did the company make. Then earnings are what's left at what's sort of left over after the expenses, interest, taxes, and other stuff like that is paid. So revenue is sort of all the money came that came in. Earnings are like what's left after the expenses. Um, profit margins can help tell us a story about how like efficient um that company is running, so um um how profitable they are as a percentage. Um and then guidance is just basically the management telling the investors, so the management of the company telling the investors what they expect going forward. Um so um, you know, do if they're selling AI chips, do are they projecting to sell more AI chips next quarter or less AI chips next quarter, right? If they're selling um, you know, if they're a uh a fast food joint, um, do they see um some of these weight loss drugs negatively affecting their business and they expect to sell less hamburgers next month? Or are they expanding more locations and expect to double how many hamburgers they sell next month? So that's really just the guidance, what management's telling the investors they expect moving forward. Um and that's oftentimes just as powerful as the revenue earnings and profit number, uh profit um uh profit margin numbers. Um that's kind of what what the numbers are and what the the guidance means.

Public Versus Private Reporting Rules

Aaron Hoisington 5:28

Question for you is this required of like all publicly traded companies? Is that is that how okay it's just just public private companies don't have to don't have to report right to the public they're gonna be able to do.

Ryan Nelson 5:38

Yeah, so privately like alchemy would be a like a privately held company, yeah, would just be a c a company that's not pub publicly traded. Once you go public, then you have to start doing this reporting. Um there's sort of mixed opinions on this reporting. Uh some of the company so so it creates transparency. So us and as investors, we can now see some more details into these companies so we know what we're investing in. Um however, some of these companies say that it's a huge administrative burden. And so they're like, hey, not much is changing from quarter one to quarter two. You're making me go through all this, like reporting, all these compliance hoops, um, and it's just a waste of resources. And so there's been talks about maybe reporting on a least frequent basis or something like that. So who knows, that could we could experience something like that in the future. Um, but the intent of this is uh around transparency and allowing investors to sort of see behind the curtain and um um uh kind of get transparency into the companies they're investing in.

Aaron Hoisington 6:36

Sure. That makes sense, yeah. And uh you you mentioned like the dog and pony show, which is kind of funny. I remember when I first kind of started getting into like I was investing a little bit on my own or buying stocks, like I got like uh uh an invite to like the the the I think it was Caesars, I want to say. Okay. Like there, I I owned some stock. I might I can't remember if it's that, but uh I got invited to their like the quarterly meeting, and it was like during like the summer of like 2020. Okay, and like it was like a it was a Zoom call or like a big conference call, and like nobody knew how to use the technology. And it was just like every time they'd go to like somebody else who would talk, like they'd be like, You're muted, you're muted. That's fine. I just I'll never forget. I was like, wow, this is a this is a this is not very good. Like what's going on here. But I have been on I I've seen other ones too, like where they have like celebration and music and all these different things, and it's like it's like an unveiling of like kind of this kind of thing.

Ryan Nelson 7:29

You're like, so some companies are trying to make it flashier and flashier. Yeah, and then there's other ones that are just incredibly boring. It's just like uh here they are. Yeah, it's just like the CFO, nobody else on it, just like just like rallying off numbers. So yeah, different companies definitely handle it differently. Yeah, that's all it's kind of funny to

Expectations Moves Stocks More Than Facts

Ryan Nelson 7:46

think about. Yeah. Um but yeah, so then so then that like we said, the companies give this guidance on what they expect to happen, right? Um, and then sort of based on that and based on what the public opinion is, the public starts to sort of um sort of guess uh what what the revenue and and um and profit margins and um and uh earnings are gonna be for the next quarter, and then and then the court the company releases their new numbers. And so you might see that company have like good rev increase their revenue, increase their um increase their profit margins, increase their earnings, and their stock still drops because maybe they didn't increase it as much as the public thought they were gonna increase it, right? Um so there's always these sort of expectations, and you'll hear a lot of times people be talking about if they beat expectations or or missed expectations. So um oftentimes when you hear companies beating expectations, you might see their pop drop, their stock pop up a little bit that day, and if they miss expectations, then you might see their stock fall a little bit that day. Um, which is it's yeah, kind of interesting. Um the other thing, you know, another thing that's a little interesting is if you think about this. So if you take company ABC, right, just a made-up company, and we have a certain amount of information about their revenue, all that stuff. Today, you know, they released their quarterly report today. So we're not gonna get a new quarterly report for another 12 months, or sorry, another three months, another quarter. Um, what's interesting is there's there's some information that comes out along that way, along the way, but largely you don't have a lot of different information between you know day one and three months from now. So it's kind of interesting if you think about like day trading or somebody who's making trades like not only multiple times a quarter, but maybe multiple times a week or multiple times a day or multiple times an hour or multiple times you know in a minute. Um, what's interesting is there's not a ton of new information coming out on a consistent basis throughout those quarters. Um, and a lot of the information that people are acting on is speculative or just something that they they they think is going to happen. So it kind of something interesting to think. So this is sort of really the holy grail when it comes to information from the company. Um yeah.

Aaron Hoisington 10:04

So yeah, no, it's interesting to think about the like I guess the perception of it and how it's like that. That's it's really, really like cool. Like we hit all our goals or whatever, but you know, maybe we were the comp the investors or the public was expecting us to crush this. We've heard all these awesome things about this, and you see you're like, oh, that's all we're getting. Like, hmm. Like kind of funny to see the correlation between like I guess perception and then like what's actually like I guess put forth in these kind of media.

The Story Companies Try To Sell

Aaron Hoisington 10:33

For sure, too.

Ryan Nelson 10:33

So yeah, and then and then even like you know, you gotta pay attention because so let's say um let's say a company um has to lay off a bunch of people. Right. Right. So now the the company it it it doesn't make a lot of sense to go just communicate to the public and say, hey yeah, we're doing terrible, we're we're losing revenue at a faster rate than we ever thought was possible. And so we had to fire all these people, right? Like that'd be a terrible presentation. So instead they try to spin it as you know, we're we're becoming more efficient, we're using AI to right size our business, which requires which allows us to lay off these people, which makes us more profitable, right? And so then the hard part is like you like you know, they're they're forced to report these numbers in a certain way, which is awesome and gives you transparency. But then also when you start listening to them, and again, they're presenting basically then a story to the public, it's like, well, okay, yeah. So is letting people go a good thing or a bad thing? Right, yeah. Like, like, you know, so so their expenses went down, maybe their profit margin went up a little bit. Are they positioning like like what yeah, it's just it you can start to see how some of these numbers aren't like necessarily super objectively just good or bad. They just like are what they are, and it takes um, you know, I'd say take everything that the company's presenting to you with a grain of salt, um, and um, you know, it takes probably uh an element of just objective of reasoning to come to some conclusions on your own and don't just blindly trust or follow sort of the stories that are being presented to you.

Aaron Hoisington 12:05

Sure.

Stay The Course And Tune Out Noise

Aaron Hoisington 12:06

And and I guess too, it kind of goes into like what you were saying, like, hey, like in kind of your your mantra, your motto, like a stay the course. Like if you believe in a company and it's like, hey, like uh we've we've mentioned like Apple computers quite a bit on this this podcast in the past, or like if you're like, hey, like one bad quarter of Apple, like probably doesn't mean I'm going to just jump out of owning a bunch of Apple stock. Like it's like, hey, this is historically done pretty well. Or these these different other companies where you're like, oh, like, do I, you know, oh, you had one bad quarter, or maybe you had two bad quarters, kind of like the stock market, like you were mentioning. Like um, you've mentioned previously, like, hey, cool, you might have some dips and such too, but generally over the course, you can look at the history, I guess, more as like better than like, oh no, the first quarter earnings weren't where we wanted them to be. Like, let's pull out everything out of this versus like, hey, let's see what you know what what the what the pattern is with this here, too. So yeah.

Ryan Nelson 12:59

I I was listening to a podcast earlier today, and it was um a gentleman talking about sort of his sort of life arc, if you will. And he's like, if you zoom out super far, he's like, it it just looks like slow, steady improvement throughout my life. I like released an ebook, people liked it. I published an actual book, it became a bestseller. I started a million dollar you know business. He's like, when you zoom out, it's just like this like like linear growth of like improvement throughout my life. But then when you zoom in and you start looking at it, it's like, yeah, at our business, we've released multiple courses that have like failed miserably and been a loss of money, right? So like as you start like zooming out, you can see like the stock market, it goes up and to the right, right? It looks slow and steady, but then when you start zooming in, you can see a lot of like ups and downs, right? A lot of kind of failures along the way. And so exactly right, the same thing. The best companies in the world have had you know re single quarterly reports that maybe weren't as great as they would have liked. So absolutely, I would not put a ton of weight on any one single report. Um, it's good information and it's good information to have. Um, but yeah, for a long-term investor, you're really thinking about, yeah, what you know, I'm investing in this company for the next 20 years. Exactly. Um, you know, if they had to let go of some c some employees last quarter, you know, that may be great. They may be doing the best thing to help position themselves for a 20-year growth, right? So yeah, you just want to, yeah, I think you know, take all this stuff with a grain of salt. One of my kind of pet peeves is from like an economic news cycle standpoint, these are basically always coming out. So if you are, if your job is to like if you are in the media, the financial media, man, this stuff is like a gold mine. It's always coming out, right? And and it sounds really important and it gets a lot of hype. And so it's just this like never-ending flywheel of new information that they can like be pushing out to us. Yeah. Um, but it's probably just not that important. Um, so so it is important stuff, but um as a retail investor, probably most people don't need to be ever logging onto one of these calls or looking at individual um reports um in zooming out and taking that longer term approach is much more rational than um putting too much weight or getting stressed out about like one company's um reports. And if you're diversified and you own, you know, hundreds of different stocks, it's like, yeah, some of your companies are gonna do really well, some are not gonna do so well, and you know that, and that's completely reasonable and expected and not out of the ordinary and not stressful at all.

Aaron Hoisington 15:29

Yeah, no, that's a that's a great, great breakdown on that for sure, Ryan. So awesome, that's great. It's kind of like, hey, like it's important, but don't put all your eggs in that kind of basket piece of it. Like, yeah, don't you shouldn't lose sleep over a quarter of earnings, like for the most part there. So um, awesome, man. Anything else to uh say on this here before we uh wrap up? No, that will do it. Awesome. I appreciate it, man. And uh we'll be uh back on the other side of this. Everybody, hang tight.

SPEAKER_00 15:52

And now to put the personal in personal finance.

Travel Bucket Lists Greece Japan Australia

Aaron Hoisington 15:59

Welcome back, everybody, this side of the physical physical podcast. Appreciate you guys hanging with us here. Still here with Mr. Ryan Nelson. And uh Ryan, got a got a question for you. Ready, man?

Ryan Nelson 16:09

Let's do it.

Aaron Hoisington 16:09

All right, so I I I can't for the life of me remember if we've done this or we've we've we've talked about this question before. I think we have, but I'm just gonna bring it back and throw it out to the listeners. So if you're new out there, hopefully you this isn't a repeat. But uh um you've been to quite a few country uh several countries throughout the throughout the world, visited, explored, eaten at different places. And I'm curious, like, what is a country that you are wanting to visit next? Like what's on your bucket list or you're I guess you're next in line to to go and visit.

Ryan Nelson 16:39

I I think I I don't know if these are next in line, but a couple countries that jump out at me is I think Greece looks beautiful. I really want to go to to Greece and um see, yeah, I just think it looks like a beautiful country. Um Japan, Japan is like looks super cool and like crazy, like from a cultural standpoint, like it just sounds like they do a lot of things really efficiently and supposed to be a beautifully clean country, great food. So um Greece and Japan are probably among the top two. Australia sounds like a ton of fun. Sure. Um, brutal to get to, but a ton of fun. Um so I guess let's call those the top three. So uh Greece, Japan, and uh Greece, Japan and Australia and Australia. What about you?

Aaron Hoisington 17:19

Okay, yeah, that's that's good. We we we have one that overlaps. I really want to check out Japan. Yeah. I've I've I was uh I was talking with some of my buddies recently, and they're like, yeah, like nobody had anything bad to say about it. And I had a couple people friends who like visited it too, and they said it's awesome, food's amazing. They they did mention the efficiency too of like you can get on a bullet train and like get across the country, like and it's like everything's relatively affordable, and so I was like, oh, that's that'd be awesome. And then the other one is I I'd like to go somewhere and like to see like the northern lights. I like to go. I I think that'd be super cool, whether it be like you know, Iceland or you know, Sweden or something like that. Absolutely. Um, but it's also a lot of those places, it's really cold. Okay, and it's so like I'm like, I don't know, like maybe that's on the maybe I should pick somewhere more tropical. But I think those would be the next two things I'd I'd want to go. I'd want to want to go to Japan. I'd want to go to somewhere where I could see the northern lights. I've seen like different places where you can rent like a or stay in like a cabin and it has like a glass ceiling. You can like watch the northern lights or whatever. I was like, that'd be so cool, like to be able to see. So um something like

Listener Question And Closing Requests

Aaron Hoisington 18:27

that. So um, but yeah, I'm curious listeners, let us know where do you guys want to go next? What's on the what's on your travel agenda, where you guys want to check out and and why. Uh let us know. We'd love to hear. Uh you can email us at podcast at alchemywealth.com. Uh send us a text, uh, send us a letter, however, you guys want to get that communication to us. We'd uh we'd love to hear it. And uh with that, Ryan, I think we'll go ahead and uh wrap up, but I'll turn it over to you. As always, stay the course.

SPEAKER_00 18:54

Thank you for joining us for the Fiscal Physical Podcast. Until next time, happy listening. And as always, stay the course. If you have a question or topic suggestions, please email us at podcast at alchemywealth.com. If you enjoyed today's discussion, subscribe to the podcast to ensure you never miss an episode. And consider leaving us a rating and review on your favorite platform. This helps other listeners like you find this channel. For more resources, you can visit Alchemy Wealth Management's website at www.alchemywealth.com or find your physical physical book on Amazon. We'd be remiss if we didn't mention the personal finances just then. First of all, please don't take anything we say as advice. The pre-titting content is for informational and entertainment purposes only. It's not an offer or a solicitation, nor should it be construed or relied upon for tax, legal, or investment advice. It doesn't consider your personal financial situation or objectives and may not be suitable for you.