Five Whys An EPS Miss
Use the Five Whys technique to identify the model-relevant root cause of an EPS miss.
EPS missed by $0.08. Management says "cost pressure," gross margin fell 160 bps, and revenue was in line. Five Whys: repeat why until the symptom becomes a model-relevant cause. The common trap is stopping at a label like "cost pressure" and lowering all future margins without knowing whether the cost repeats. Why did EPS miss? Gross margin fell 160 bps while revenue was in line. This locates the miss in margin rather than demand. Why did gross margin fall? COGS rose from expedited freight and overtime. Now the cost bucket is specific enough to investigate. Why freight and overtime? A…
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