Earnings vs. guidance

While earnings announcements are usually thought of as being about, well, earnings, the market repeatedly proves how incorrect this assumption can be.

While companies always like to highlight a profitable quarter, “headline numbers”—earnings and revenue—tell the story of past performance. “Guidance,” on the other hand, tells the story of what a company expects in the future, and it can be the deciding factor in how the market treats the stock, at least initially.

For example, on Tuesday Home Depot (HD) underperformed its headline earnings and revenue estimates for the first time since 2014. The company did, however, reiterate its bullish full-year outlook, which helps explain the stock’s 5% intraday rally despite an apparent “earnings miss.”

On August 5 that dynamic played out in reverse in BellRing Brands (BRBR), which topped its headline numbers but gave forward guidance that was softer than many analysts had expected. The immediate result was a 32.5% sell-off to a 16-month low:

After that move, Morgan Stanley & Co. analysts acknowledged that, while near-term sentiment was “likely to remain challenged,” they remained confident in the company’s medium-term growth outlook and maintained their Overweight rating on the stock.¹

Jump forward a couple of weeks, and BRBR has still traded entirely within August 5’s high-low range. But on Tuesday it rallied more than 6% intraday and had one of the market’s higher call-put ratios. With the stock mostly between $39 and $41 in early trading, the options chain showed 2,700 contracts changed hands in the September $47.50 calls:

That volume added to BRBR’s already-heavy concentration of open interest (OI) in out-of-the-money September calls (i.e., those with strike prices above the current stock price), including 19,000 contracts in the $42.50 calls. Most of that position (nearly 18,000 contracts) was established on August 6, the day after the stock’s earnings sell-off.

While there are two sides to every trade, the sizable positions that have accumulated in BRBR’s September call options suggest that at least some traders may have thought the market’s immediate reaction to the company’s earnings—or, rather, its guidance—was overdone, at least in the short term.

There are many layers to earnings. Not only do the headline numbers not always tell the most important part of the story, the initial reaction to that story doesn’t always hold.

Today’s numbers include (all times ET): Atlanta Fed Business Inflation Expectations (10 a.m.), EIA Petroleum Status Report (10:30 a.m.), FOMC minutes (2 p.m.).

Today’s earnings include: Analog Devices (ADI), Estee Lauder (EL), Lowe's (LOW), Target (TGT), TJX (TJX), Williams-Sonoma (WSM).

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¹ MorganStanley.com. 3Q Follow Up: Challenging Near-Term Set-Up but Long-Term Story Intact. 8/6/25.