What is earnings guidance?
In one line: Guidance is a company's own forecast of future results, like next quarter's sales or earnings per share, usually given with its earnings report.
A simple example
A company reports its quarter.
- Analysts expected Earnings per share (EPS) of $1.00. It reported $1.10. A beat.
- But it says next quarter's sales will be $4.6 to $4.8 billion. Analysts had expected about $5.0 billion.
The stock falls 8% after hours. The past quarter was good. The forecast for the next one was weaker than hoped.
That's guidance at work. Markets tend to look forward more than back.
What guidance can include
- Sales (revenue) for the next quarter or full year.
- EPS for the same period.
- Profit margins, costs or spending plans.
- Sometimes a range, like "$4.6 to $4.8 billion," rather than one number.
Some companies give no guidance at all. Others update it during the year.
Why it matters
Guidance is often the biggest reason a stock gaps after an Earnings report. Price can jump or drop far past where it closed.
That means a stop may not protect you at the price you set. A stop placed before the report can fill much worse when trading opens, called Slippage. Read more in what moves stock prices.
A common mistake
Reading the headline and stopping. "Beat on earnings" sounds good. But if guidance was cut, the stock may fall anyway. Read both the past results and the forecast.
Also, guidance is a forecast, not a promise. Companies miss their own guidance too.
For a plain summary of a long report, an AI assistant can help pull out revenue, EPS and guidance. Check the numbers against the company's own release. See how to use AI to read earnings reports.
Questions
What does "raised guidance" mean?
The company now expects better results than it said before. "Lowered" or "cut" guidance means it expects worse.
Where do I find a company's guidance?
In its earnings press release, its investor relations website, and on the earnings call.
Why does a stock fall after beating earnings?
Often because guidance came in below what investors hoped, or because the beat was smaller than the market expected.
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