Earnings guidance.
In plain English
Earnings guidance is management's public estimate of how the company expects to perform in a coming quarter or year, usually given as a range. It is voluntary, and a company can raise it, lower it, withdraw it, or never give it at all. Because analyst estimates cluster around guidance, a stock often reacts more to a change in guidance than to the results just reported. Guidance is a forward-looking statement, which is why it arrives wrapped in cautionary language about assumptions and risks. Setting a range that management is confident of beating is a known practice, so a small beat says less than it appears to.
01Why it matters
A company can report a strong quarter and see its stock fall hard the same afternoon, and the reason is almost always guidance, which is about the future rather than the quarter just closed.
02The math, step by step
Say a company reports 1.10 dollars of earnings per share against a 1.05 consensus, a 4.8 percent beat, then guides next quarter to a range of 0.95 to 1.00 when analysts expected 1.15. The beat is worth 0.05. The guidance cut is worth about 0.17 at the midpoint.
Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.
03What this is NOT
It is not the analyst number. Guidance comes from management. Consensus is the average of analyst forecasts, which are usually anchored to guidance but move independently. The gap between the two is often what actually drives the reaction.
04Receipts
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Plain-English answers from our glossary. Receipts included. Never advice.
Educational tool. Answers come only from ClearMoneySchool's published glossary and are not advice. Why we never give advice