Earnings guidance – major companies pulling out
Earnings reporting season in the US has this year been marked by the number of companies that have ceased providing guidance on future earnings. 2 sets of information have shed some light as to why this is.
Provision of guidance dates from the protection that was offered to companies and their directors with the passage of the1995 Private Securities Litigation Reform Act (PSLRA). Initially, many companies did not take advantage of the protection by publishing a safe harbour statement, however by the late 90’s and early noughties, many – most – companies were doing so.
However, that now seems to be on its way to change.
The House Committee on Financial Services held a meeting 3 weeks ago entitled "Fostering Accuracy and Transparency in Financial Reporting.", at which Candace Browning, head of global research at Merrill Lynch, noted "This process drowns out investor debate and distils what should be a complex message about performance into a single number--dictated by the company itself."
Supporting this, the National Investor Relations Institute, the professional association of investor relations officers in the US, found that the share of companies giving guidance has dropped from 71% in 2005 to 66% this year.
It is also worth noting that several of the SEC prosecutions under Regulation Fair Disclosure have been connected to the manner in which guidance has been made available to analysts.
Critics of the process of providing guidance on future earnings highlight the need that accompanies this, for companies to focus on hitting the target – at the expense, argue the critics, of longer term thinking about their businesses.
Supporters however argue that the process of providing earnings guidance is one of the few legal ways of meeting Regulation Fair Disclosure, which requires that material information is delivered simultaneously to all sections of the market.
Meantime, the trend towards ceasing the provision of earnings guidance continues – with significant names such as Coca-Cola, AT&T, McDonald's, Ford and Google declaring that they will not provide guidance.
Provision of guidance dates from the protection that was offered to companies and their directors with the passage of the1995 Private Securities Litigation Reform Act (PSLRA). Initially, many companies did not take advantage of the protection by publishing a safe harbour statement, however by the late 90’s and early noughties, many – most – companies were doing so.
However, that now seems to be on its way to change.
The House Committee on Financial Services held a meeting 3 weeks ago entitled "Fostering Accuracy and Transparency in Financial Reporting.", at which Candace Browning, head of global research at Merrill Lynch, noted "This process drowns out investor debate and distils what should be a complex message about performance into a single number--dictated by the company itself."
Supporting this, the National Investor Relations Institute, the professional association of investor relations officers in the US, found that the share of companies giving guidance has dropped from 71% in 2005 to 66% this year.
It is also worth noting that several of the SEC prosecutions under Regulation Fair Disclosure have been connected to the manner in which guidance has been made available to analysts.
Critics of the process of providing guidance on future earnings highlight the need that accompanies this, for companies to focus on hitting the target – at the expense, argue the critics, of longer term thinking about their businesses.
Supporters however argue that the process of providing earnings guidance is one of the few legal ways of meeting Regulation Fair Disclosure, which requires that material information is delivered simultaneously to all sections of the market.
Meantime, the trend towards ceasing the provision of earnings guidance continues – with significant names such as Coca-Cola, AT&T, McDonald's, Ford and Google declaring that they will not provide guidance.
posted by Mark Hynes @ 9:53 am
1 Comments:
At 10:49 am,
Anonymous said…
If you are interested in this topic there is a more in depth ariticle in the latest edition of Informed, the Investor Relations Society Magazine.
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