Trading on Corporate Earnings News: Profiting from Targeted, Short-Term Options Positions

Chapter 13. Revenue and Expense Surprises

This chapter discusses revenue and expense surprises. In recent years, it has become increasingly common for analysts to issue revenue forecasts along with their earnings forecasts. This has placed additional pressure on managers to meet not only earnings expectations, but also revenue expectations. Accounting earnings are nothing more than revenues minus expenses. So when a company announces earnings, if an earnings surprise occurs, by definition there must be either a revenue surprise or an expense surprise (or both). The subtler point is that a company can meet earnings expectations (that is, have an earnings surprise of zero) and yet still have revenue/expense surprises. Indeed, this has been the ...