Majority still offer guidance

Despite the wild economic ride we’re on, most companies haven’t stopped providing forward-looking guidance on earnings, according to a survey by the National Investor Relations Institute.

In an Executive Alert published May 18, NIRI says the practice of guidance continues to decline – but not very fast:

One might assume that the recent dramatic economic decline would necessarily result in a meaningful decline of public company guidance. Counterintuitively, NIRI member respondents have not abandoned guidance in large numbers.

A few highlights from the 2009 survey of 515 NIRI members:

  • 60% say they do provide earnings guidance, down from 64% a year ago. The ranges companies provide are wider amid economic uncertainties.
  • 50% of the companies offer guidance on revenues, also down a bit.
  • Guidance on annual expectations is most popular, with quarterly updates.
  • The most common reason for offering guidance is as a way to keep sell-side expectations in line with what seems reasonable to companies.
  • My own feeling is that the decision “To guide or not to guide?” is individual to each company. The answer depends on needs of your investors, comfort level of your management and board, predictability of your business and so on. In some cases, offering qualitative or quantitative views on earnings drivers such as trends in key markets in which you compete may be as useful as an EPS range.

    Point is, most investors assess the value of your stock based on some forward-looking estimate of earnings or cash flows – so IR needs to provide as much guidance as the company is comfortable providing.

    A company’s policy on guidance, NIRI suggests, should include decisions on metrics that management wants to give forward-looking information on, time frames for that guidance (annual, quarterly, monthly), and frequency of communicating guidance. NIRI also offers links to supplemental information for members (see the Executive Alert).

    So there it is – some guidance on guidance.

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