A situation that arises when earnings reported by a company are different from the earnings that had been expected by financial analysts. In equation form, it is the difference between reported earnings and expected earnings:

UE_t = EPS_t – E(EPS_t)

Where: UE_t denotes unexpected earnings for quarter t; EPS_t is reported earnings per share for quarter t; E(EPS_t) is expected EPS for the same quarter.

For example, a stock with reported quarterly earnings of $2 and expected earnings of $1.60 would have positive unexpected earnings amounting to $0.40. Positive unexpected earnings often result in a sharp increase in the market price of a stock. On the contrary, negative unexpected earnings usually cause a sharp decrease in a stock’s market price.

This situation is also known as earnings surprise.