Earnings Guidance, Beats and Misses Explained

Coverage of earnings often centers on three words: beat, miss, and guidance.

Consensus expectations

Before a company reports, financial analysts publish forecasts of its revenue and earnings per share (EPS). The average of those forecasts is called the consensus estimate. It is not something the company controls, and it comes from analysts, not from the filing.

Beat, miss, in line

• Beat: the company reported a figure above consensus.
• Miss: the company reported below consensus.
• In line: roughly at consensus.

Important details:

• The comparison is nearly always made on adjusted EPS, because that is what analysts forecast. See GAAP vs adjusted EPS.
• Companies often guide analysts to expectations they can clear, so a large majority of companies beat. A modest beat is normal, and what matters is its size and quality: was it operations, or a lower tax rate, share buybacks, or a one-time gain?
• Revenue and EPS can point in different directions.

Guidance

Guidance is management's own forecast for a coming period, given voluntarily in the earnings release or on the call. It might be a range for next quarter's revenue and EPS, or a full-year outlook. Companies raise, lower, or reaffirm it.

Guidance tends to matter more than the past quarter for a simple reason: a stock price reflects expectations about the future, and the quarter just reported is already history. A company can beat this quarter and still see its shares fall if it guides below expectations.

How to read guidance

• Compare with consensus, not only with the previous guidance. A raise that falls short of what analysts expected is a disappointment.
• Look at the range. A narrow range signals confidence; a wide range signals uncertainty.
• Read the assumptions, such as currency rates, tax rate, or macro conditions, and check whether they look reasonable.
• Note what is missing. If a company stops giving a number it used to give, ask why.

A caution

Guidance is a forecast, not a promise. The reports on this site describe what a company reported and what management said it expects; they do not predict what a share price will do.