The following type of report occurs each quarter as firms announce their earnings: Weaker-than-expected results last week from Exxon Mobil have set a gloomy backcloth for results on Thursday from Royal Dutch/Shell. A consensus of Wall Street analysts polled by Thomson Financial/First Call had projected Chevron Texaco would report earnings of 70 cents per share. However the company said that after excluding special items and merging related expenses and both periods, operating earnings were 931 million (.88 cents). Using that math, the company beat the analysis; figure by .18 cents. The company said it lost 154 million in the first quarter, compared with the year ago quarter, in reframing, marketing, and transportation operations. The company said its profit margins in the last sector were at their lowest levels since the mid 1990?s. Chevron stock closed up .90 cents, to $85.90, yesterday on the New York Stock Exchange.
a) Why does the stock market react to earnings reports? b) What do the earnings mean?