A SURVEY of more than 180 sell-side analysts has found that 77% say they prefer when companies provide earnings guidance, while almost 70% consider it a warning sign when companies stop providing forecasts.
The survey, authored and conducted by Tony Rossi, senior vice president of Chicago-based IR firm Financial Relations Board, found the following:
Do you prefer when companies provide earnings guidance?
No preference: 8.6%
Which line items do you like to see companies provide guidance on?
Revenue and EPS: 83.3%
Revenue only: 10.6%
EPS only: 6.1%
What type of guidance do you like companies to provide?
Quarterly and Annual: 54.9%
Long-term targets only: 12.1%
Is it more important for a company that operates in a niche industry or market to provide guidance?
No opinion: 23.7%
Do you consider it a “red flag” if a company stops providing guidance?
What do you believe are the benefits to providing earnings guidance?
Helps to better manage investor expectations: 84.9%
Demonstrates ability to forecast business results: 63.1%
Builds credibility for the management team when guidance is met or
Increases ability to have meaningful dialogue with the investment
Reduces stock volatility: 39.7%
Surveys like this are a good reminder that people who advocate ending short-term guidance typically ignore the fact that guidance helps to build and reinforce credibility with investors and analysts.
The problem is not guidance itself, but rather it is dishonest and overly optimistic managers who manipulate their results to meet forecasts because they lack the spine to tell it like it is.