By William Trent, CFA of Stock Market Beat
End quarterly earnings guidance: business group – Mar. 12, 2007
The U.S. Chamber of Commerce called Monday for an end to quarterly earnings guidance by companies, a shake-up at the Securities and Exchange Commission, optional federal charters for insurers, protections for auditors, and retirement savings initiatives.In a laundry list of business community goals, some old and some new, a commission formed by the chamber – the nation’s largest lobbying group for business interests – said the changes were needed because U.S. markets face new challenges.
We have mixed feelings about the whole quarterly guidance game. It does reinforce short-termism, but shareholders are the company owners and presumably are entitled to know what management expects. The problem is when expectations and reality get out of whack, a
nd the disclosures start doing more harm than good. However, we believe this situation is rare and the presumption should be that more disclosure is better until proven otherwise.
As a general rule, we would prefer hard data to management’s (or anyone else’s) expectations. Monthly sales reports, retail product sell-through and other resources offer a better glimpse into what is really happening and would seem less subject to manipulation. We would gladly exchange quarterly EPS guidance for more frequent updates of useful hard data.
