Earnings Beat / Miss
When reported revenue or EPS comes in above the consensus estimate it is a beat; below is a miss; roughly equal is in line. The difference expressed as a percentage of the estimate is called the surprise.
How to read it
Look at revenue and EPS separately. A revenue beat says demand is strong; an EPS beat may simply reflect cost control or buybacks. A quarter is only truly solid when both come in ahead.
Magnitude matters more than direction. Roughly 70% of S&P 500 companies beat on EPS every quarter, so a small beat is close to the norm and does not count as good news.
The stock's reaction the day after the report is the market's overall grade, and it usually reflects the quarter's numbers, next quarter's guidance and what was said on the conference call all at once.
Common pitfalls
- A company that beats this quarter but lowers guidance for the next will most likely see its stock fall. Conversely, a slight miss paired with raised guidance can send the stock higher.
On FinDog
The "Expected vs. Actual" scorecard on each earnings analysis page gives a verdict and a magnitude for every line item. The Decision Panel on each stock page tallies the average first-day move after the past several reports and how many times the stock rose.
See this Earnings Season →Related terms
- Consensus EstimateThe consensus estimate is the average (or median) of the forecasts that sell-side analysts covering a company have made for metrics such as revenue and EPS. The market uses it as the baseline for deciding whether a report was "good."
- GuidanceGuidance is management's forecast for next quarter's or the full year's revenue, margins, EPS and similar metrics, usually given as a range. It is one of the parts of an earnings report that moves the stock the most.
- Earnings Per Share (EPS)Earnings per share is net income divided by shares outstanding: how much profit each share earned during the period. It is the most closely watched number in any earnings report, and it is also the denominator of the P/E ratio.