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, and 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.
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