Profit Warning

Listed companies are usually required to disclose information that could significantly affect their share price as soon as possible. If a company realizes that its results will fall well short of expectations, it must inform the market rather than wait for its next scheduled results.

Profit warnings can be triggered by factors such as weaker sales, rising costs, supply problems, the loss of a major customer, poor weather or economic downturns.

For example, a retailer might announce in December that weak Christmas trading means its annual profits will be about 20% below analysts’ forecasts. Its share price may fall sharply that day.

Profit warnings are closely watched, especially in the United Kingdom, where the term is widely used and studies track their frequency as a sign of corporate stress. Research suggests that companies issuing one profit warning are more likely to issue further warnings within the following year. In the United States, similar announcements are often described as negative earnings preannouncements or lowered guidance.