CFOs Put Away Their Crystal Balls

CFO, April 09
With the economy still shaky, many companies are refraining from providing quarterly earnings guidance. There will be a lesser number of CFOs offering investors short-term guidance during this earnings season.
Many business groups in recent years have tried to check the demand by investors, analysts, and CNBC commentators to provide absolutely accurate predictions about how their next quarterly financial results will turn out.
Once the credit markets started to close up, since September and the economy's future began to appear bleak, an increasing number of companies have shifted their guidance policies by stopping quarterly earnings guidance and trying to focus investors' attention onto other metrics, such as expected revenue, same-stores sales, or capital expenditures. Some are instead providing earnings guidance only on an annual basis.
The figures are also not pretty and when major companies began sharing their latest earnings results over the past few days, their figures have fallen below market expectations.
Aetna, Cogent Communications, General Electric, Ingram Micro, Intel, Knoll, Nexstar Broadcasting, Unilever, and Universal American are some of the companies that have announced plans to stop quarterly earnings guidance or scale back on detailed guidance for other metrics in recent months.
Corporate law firm Bass, Berry & Sims sent an alert to its clients advising them not to commit to resuming guidance or give any indication of when that could happen. But if the company chooses to stop the forecasts for reasons beyond the financial crisis, such as because of a belief that investors are too reliant on short-term goals, and then it should let investors know the decision is permanent, the firm noted.
NIRI's Morgan recommends that companies be upfront with investors about changing guidance policies, and to do so in advance of investor conference calls. The decision should "not be a kneejerk reaction" to negative financial results, he adds.
However, in recent years in spite of business advocates' hopes, such as the U.S. Chamber of Commerce, that companies would band together to stop investors' expectation for on short-term guidance, the practice of giving any kind of earnings guidance had been increasing. Though the companies that do stop the practice, run the risk of outside analysts doing the predictions for them and feeling pressure to meet those targets or having to explain every three months why they haven't met them.
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