From IR guru Kirk Brewer:
The current edition of The Economist takes the continuing debate over earnings guidance a couple of steps beyond the obvious.
The magazine … cites the NIRI study we highlighted previously as evidence that quarterly earnings is becoming less prevalent than it was in the late 1990s. But the publication also looks into the reasons why, and the impact on companies and investors.
“Behind this trend is the belief that quarterly guidance, coupled with a fixation on whether companies match their forecast earnings per share (EPS) to the last penny, does more harm than good. Critics of the practice, who include not only company bosses but also regulators, academics and investors (among them, Warren Buffett), think companies are pushed into making poor decisions or tinkering with numbers to make sure that they hit their short-term targets.”
Guidance has always been a fishy (as in, smelly) business, anyway. Back in the day, the conversation usually went like this:
Wall Street analyst: So, what are your earnings going to look like next quarter?
Company IR person: You know I can’t tell you that … but if you guess right, I’ll cough once, and if you guess wrong, I’ll cough twice.
Wall Street analyst: $1.35 per share.
Company IR person: Cough cough.
Wall Street analyst: Should I go higher or lower?
Company IR person: You know I can’t tell you that … but if you’re going in the right direction, there’ll be a long silence on my end of the phone.
Wall Street analyst: $1.45 per share.
Company IR person:
Wall Street analyst: Wow, it’s looking like a great quarter for you guys. $1.52 per share?
Company IR person: COUGH.
Wall Street analyst: Yes! That’s all I need. Take me to lunch next week?
Company IR person: You got it. Buh-bye.
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