Update: According to IR Magazine, which alludes to this post in a backhanded way, I have this story wrong. They say: “The survey found that the proportion of companies providing quarterly earnings estimates (which NIRI says should not be confused with the frequency with which guidance is offered), are down to 18 percent, from 27 percent in 2007. Longer time frames including annual estimates account for 72 percent, up from 59 percent.” However, when I read the source surveys for 2008 (question 5) and 2007 (question 23), they say those providing quarterly estimates is up to 34% from 27% in 2007. Furthermore, those providing annual estimates are down to 55% from 58% in 2007. That makes sense given current business conditions. So I don’t know where IR Magazine got its numbers from. Also, if you’re updating your guidance quarterly, be it annual or whatever, you’re essentially guiding quarterly, so it’s splitting hairs, especially when you think about the guidance for “the year” that’s issued in the fourth quarter with the third-quarter results. But I now think IR Magazine and NIRI have botched this one much worse than me. All of this aside, I did place undue emphasis on the frequency of guidance instead of the nature of the guidance. But I think the numbers still support the premise of my story, albeit less forcefully. But you should read the release and the source surveys yourself to see how convoluted it all is. Original post follows…
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THERE has been a sharp increase in the number of US companies providing earnings guidance, but they may be missing the mark in terms of what investors are looking for.
Member surveys in March by the National Investor Relations Institute (NIRI) and the CFA Institute Centre (CFAIC) found that quarterly earnings guidance was most common among NIRI members, but CFAs like companies to provide annual earnings guidance more than quarterly earnings guidance.
Breaking a trend, fully 64% of NIRI members report providing earnings guidance compared to 51% in 2007 and 66% in 2006. However, among companies that provide earnings guidance, 47% provide it on a quarterly basis versus 10% that provide only yearly estimates and 34% that provide yearly guidance that is updated quarterly.
Meanwhile, 60% of CFA Institute members said they agreed or strongly agreed that it was best practice for companies to provide yearly guidance compared to 45% who said the same of quarterly guidance.
About 54% of the CFAs said that more than half of the firms they follow adequately communicate their long-term strategic objectives, while 47% said that less than half of the firms they cover adequately communicate their long-term objectives.
CFAs strongly prefer companies to simultaneously provide guidance on a broad number of financial measurements, with revenue (86%) and capital expenditures (84%) as the top two. Trend information that may impact a company’s business and industry-specific information were the top two non-financial measurements preferred by investment professionals.
There is much more in the news release if you’re interested.
Dominic (bio & disclosures) is IR Web Report‘s founder and an online investor relations consultant. He advises leading public companies and investor relations service providers worldwide on using the web for disclosure, engagement and profile building. You can contact him via the contacts page.
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