Reading quarterly results: year-over-year and seasonality

STEP 1Quarterly results and two ways to compare

Waiting only for a one-year report card means waiting too long. That is why listed companies report their results every three months. The question is what you compare those three-month numbers against.

The report card that comes out every three months

As seen in Lesson 4, a listed company with a December fiscal year-end files a report each time Q1 (Jan–Mar), the first half (Jan–Jun) and Q3 (Jan–Sep) end, and files an annual report when the year ends. So investors can check a company's results four times a year. Quarterly results come out sooner and more often than annual results, so stock prices react to quarterly results more often than to annual ones.

Splitting Robin Bakery's (fictional) Year 3 revenue of KRW 12 billion into quarters gives KRW 2.7 billion in Q1, KRW 2.8 billion in Q2, KRW 2.9 billion in Q3 and KRW 3.6 billion in Q4. Q4 is especially large because Christmas and year-end cake orders pile up. Operating profit is also largest in Q4: KRW 300 million, KRW 320 million, KRW 330 million and KRW 550 million.

Quarter-over-quarter (QoQ) and year-over-year (YoY)

There are two ways to compare quarterly results. One is quarter-over-quarter (QoQ), which compares with the immediately preceding quarter, and the other is year-over-year (YoY), which compares with the same quarter a year earlier. The "15.6% decline" in today's opening question is QoQ. Comparing Year 3 Q1 revenue of KRW 2.7 billion with the immediately preceding quarter, Year 2 Q4, at KRW 3.2 billion gives −15.6%. But compared with the same Q1 a year earlier, at KRW 2.5 billion, it is +8.0%. With the same number, one comparison says "plunge" and the other says "growth."

As a running analogy, comparing a midsummer time with a midwinter time is QoQ, and comparing it with last summer's time is YoY. For a business where the seasons change results a lot, such as with the weather, you need to compare the same season to see whether it has really improved.

See it in a chart: the same quarter, a different story

Click the Year 3 quarterly bars. The buttons at the top let you switch the comparison method (QoQ, YoY) and the figure (revenue, operating profit). The pale bars are Year 2 and the dark bars are Year 3.

STEP 2Seasonality and 3-month vs cumulative numbers

Surprisingly many companies are seasonal. And when you open a quarterly report, the same quarter shows up on two lines, which can be confusing. Let's sort out both.

Industries with seasonality

Seasonality is the tendency for results to rise or fall repeatedly at the same time each year. Ice cream and air conditioners are concentrated in summer, heating, year-end gifts and cakes in winter, and travel and airlines in the holiday season. It can also arise from the timing of a company's spending. A company that bunches bonuses or advertising at year-end shows lower Q4 operating profit relative to revenue.

For a company with seasonality, QoQ numbers rise and fall in the same shape every year, so by themselves they carry little new information. So for such companies, use YoY as the default and use QoQ to check whether "it did better or worse than the usual seasonal pattern." However, if the same quarter a year ago was unusually bad, YoY can look greatly inflated, so you should also think about the base effect.

"3 months" and "cumulative" in the quarterly report

If you open the income statement in a quarterly report, there are two lines of numbers for the same quarter. 3 months is the result for just those three months of the quarter, and cumulative is the result summed from the start of the fiscal year to the end of that quarter. In a Q3 report, "3 months" is Jul–Sep and "cumulative" is Jan–Sep. For comparison, the same period's 3-month and cumulative numbers from a year earlier are shown on the right. Below is part of a real quarterly report's consolidated income statement, redrawn with the same numbers.

In this table, Q3 three-month operating profit was KRW 12.17 trillion, up about 32% from KRW 9.18 trillion a year earlier. But the Jan–Sep cumulative figure of KRW 23.53 trillion is actually about 10% lower than KRW 26.23 trillion a year earlier. This is a pattern of a weak first half followed by a Q3 recovery. As you can see, 3 months shows "the current pace" and cumulative shows "progress for the whole year."

Q4 numbers are found by subtraction

There is no separate report for Q4 alone, because once Q4 ends, the annual report shows the whole year. So Q4 results are calculated as annual results − Q3 cumulative results. Companies often state Q4 numbers separately in preliminary earnings filings or earnings presentations, but the principle is the same.

STEP 3Reading preliminary earnings and consensus

A quarterly report comes out within 45 days after the quarter ends, but big companies announce rough numbers much earlier. The day the stock price moves a lot is usually this day.

Preliminary earnings: the numbers announced first

Preliminary earnings is a disclosure in which a company announces key figures such as revenue and operating profit before it finishes closing its books. It is posted on the exchange disclosure system (KIND) and DART under names like "Consolidated Operating (Preliminary) Results (Fair Disclosure)." Because these are numbers before the external auditor's audit or review, they can differ slightly from the quarterly and annual report figures that come later. For example, in the Q3 2024 case below, preliminary operating profit was announced as KRW 9.1 trillion, and the final figure in the quarterly report was KRW 9.18 trillion.

The gap from expectations, not the number

In Learn (Economics) Lesson 20, you learned that the market reacts to the gap from expectations rather than the indicator number itself. Corporate earnings are the same. The average of the earnings forecasts published by brokerage analysts is called the consensus; if the actual number is well above consensus, it is an earnings surprise, and if it is well below, it is called an earnings shock. If good results were already expected and reflected in the stock price, even large YoY growth is just "as expected."

In the first case, YoY +782.5% is a very large number, but because the market had already expected the KRW 105–107 trillion range, it was read as "in line," not a "surprise." Conversely, because the same quarter a year earlier was very low, there was also a base effect that made YoY look inflated. The second case is one where profit grew a lot from a year earlier yet fell short of expectations and disappointed. Even the same "quarterly result" can mean the opposite depending on what it is compared against.

Finding it yourself on DART: the order for reading quarterly results

• 1When the quarter ends, check the scheduled announcement date on the earnings calendar, and on the day, look at revenue and operating profit in the preliminary earnings disclosure on KIND and DART.
• 2Compare with the consensus reported in the news the same day to judge whether it is a surprise, in line, or a shock.
• 3In the quarterly report that comes out within 45 days, check 3 months (YoY) and cumulative (this year's progress) in III. Financial Matters → Consolidated income statement.
• 4Find Q4 by subtracting Q3 cumulative from the annual figures in the annual report.

How to use it in investing

This is not always the case. Quarterly numbers can swing with one-off costs, exchange rates and the timing of accounting treatment. Look at the YoY trend over several quarters rather than a single quarter. This lesson does not recommend buying or selling any particular stock.