Earnings Surprise
How much reported results (usually EPS) differ from market expectations (the consensus) — above it is a surprise, below it is a shock.
Surprise (%) = (Actual EPS − Expected EPS (consensus)) ÷ |Expected EPS| × 100
If the actual figure comes in above expectations it is positive (a surprise); below, negative (a shock).
In plain terms
Before a company reports, brokerage analysts publish estimates saying "EPS for this quarter will be roughly this much." The average of those estimates is the consensus (market expectation).
An earnings surprise is how far the actual reported figure lands away from that expectation. Better than expected is called an "earnings surprise" (a positive one), and worse than expected is called an "earnings shock."
What it tells you
A share price already reflects market expectations to some degree. That is why "results better than expected" move the price more than simply "good results." It is also why a price can fall even when results hit an all-time high, if they came in short of expectations.
An earnings surprise shows "the result relative to market expectations" rather than "the company's underlying ability." So the same results can be a surprise or a shock, depending on where expectations sat.
Formula
Surprise (%) = (Actual EPS − Expected EPS (consensus)) ÷ |Expected EPS| × 100
What high or low means
If the actual figure comes in above expectations it is positive (a surprise); below, negative (a shock). That said, whether the company clears expectations for several quarters in a row (consistency) means more than a single quarter's surprise.
Sometimes revenue beats expectations while only EPS does (or the other way around). The meaning changes depending on where the surprise came from — the top line or profitability.
If a company deliberately keeps expectations low (conservative guidance), ordinary results can still be made to look like a "surprise." So how a surprise came about tells you more than a single surprise itself.
Surprises are often measured against adjusted (non-GAAP) EPS, which can differ from accounting (GAAP) profit. The size of the surprise changes depending on which EPS was used to measure it.
Even when there's a surprise, the share price can move the other way. Markets often react more to the outlook ahead (guidance) than to the reported figures.
Metrics to read alongside
See it in real stocks
Search US stocks on Stocklore to see SEC-filing-based financial metrics alongside the sector benchmark.
This explanation is for information and reference only and is not a recommendation to buy or sell any security. Investment decisions and their consequences are your own.