TheCorporateCounsel.net

As we make our way through a complicated earnings season, this WSJ article says that some companies may be looking at ways to expand the range for guidance – or implement more nimble forecasting processes. One thing that companies probably won’t do – at least for now – is back away entirely from the practice of giving guidance, which serves a Reg FD purpose in addition to generally managing expectations. This CLS Blue Sky blog explains:

Headlines during earnings season often focus on the forward-looking guidance corporate managers provide. Yet, questions remain about managers’ perceptions of the guidance process and the tradeoffs they face in deciding whether and what to guide. To gain greater insight, we surveyed 357 managers at publicly listed corporations and conducted nine in-depth interviews.

Our survey sheds light on the critical role guidance plays during earnings season. Because analysts and investors dislike surprises, our respondents said guidance provides an effective channel to manage expectations. Around earnings announcements, corporate managers commonly meet privately with analysts and investors after conference calls. Our respondents said that providing guidance allows for more open and forthcoming discussions about the future in one-on-one meetings, with less concern that the conversation will run afoul of disclosure regulation (Reg FD).

Our study also highlights some downsides of issuing guidance. We find that reporting results that fall short of guidance is a primary concern because it signals a failure to understand the business or a lack of control of the company’s operating environment. The anticipated consequences of missing guidance include reduced credibility of future guidance, increased scrutiny from sell-side analysts and the board of directors, and stock price declines.

The managers said that widespread economic uncertainty would be the only circumstance that would cause them to stop providing guidance entirely. Yet, that may also be when these Reg FD-compliant private calls will be most valuable. It will be interesting to see whether there’s a drop-off in the practice of providing guidance as recession murmurs grow louder.

For more practical guidance on this topic, make sure to mark your calendar for November 16th, 2-3pm Eastern, for our webcast, “Dissecting the Quarterly Earnings Process” – with Goodwin’s Sean Donahue, O’Melveny’s Shelly Heyduk, and Cooley’s Reid Hooper. Members of this site are able to attend this critical webcast at no charge. If you’re not yet a member, try a no-risk trial now. Our “100-Day Promise” guarantees that during the first 100 days as an activated member, you may cancel for any reason and receive a full refund. The webcast cost for non-members is $595.

– Liz Dunshee