Just in case anyone was on the road and missed their Wall Street Journal today, I wanted to point out that there is a wealth of articles for today’s finance professional in the special fourth section. It includes great and topical thoughts on buybacks, guidance policies, CEO comp, the changing world for CFOs, IPOs, etc. As far as I’m concerned, this just paid for my subscription this year.
One great read in particular that I wanted to point out is, The Case for Guidance. I have been making the case for years to numerous IR teams and boards on why guidance can be a critical communications tool during periods of change and I think the author hits the nail on the head. His research concludes that management’s quarterly earnings guidance is more accurate than the sell-side’s consensus 70% of the time. Your likely thought is I sure hope that’s true; corporate managers should be able to more accurately predict their future than outside scorekeepers. But the point is, if you only have 2-4 covering analysts – and thus always have the possibility of a volatile consensus that can be influenced heavily by one outlier – wouldn’t you rather be measured on a more reliable quarterly metric like your own guidance than a consensus of their forecasts? Or better said, wouldn’t you like to have a tool that gives you the ability to manage and engage that outlier directly. Quantitative and qualitative (when done well) guidance can provide those tools. It’s not for every company. And there is no one-size-fits all answer in the decision between annual or quarterly guidance. But in my experience, I’ve seen more companies use the tool effectively to limit stock volatility and better control their message, than those who’ve misstepped.
Again, a ton of must reads in this link.
Full Special Section: