What is Incremental Operating Margin?

Incremental margins is a comparison of changes in revenue and operating margins.

Stock prices can be punished if investors are disappointed by op margins results- despite solid earnings growth. This is evidenced by BHI and AMZN, which declined substantially on earnings announcement days. In Q3, BHI's op margin declined to 21.76%, only up slightly from 21.17% in Q2, and much weaker than 22.65% in Q1. The company also cut its Q4 op margin guidance to 25% from its long-term goal of 30%. Meanwhile, AMZN's op margin fell consecutively to 3.77% from 4.02% in Q2 and 4.81% in Q1.

This means that investors are getting more nervous about rising costs and how it can hamper future earnings growth.