TheCorporateCounsel.net

This FCLTGlobal article reports the results of a survey of IR professionals on quarterly guidance practices. It concludes with this advice: “For companies still issuing quarterly guidance, even though it’s not required, nobody truly wants it, and it’s bad for your stock price, it’s time to start considering alternative ways to communicate with your investors.” The survey of US companies found that only 19% continue to provide quarterly guidance.

I don’t think it’s a surprise to our readers that this practice has been trending downward over the years. I was actually surprised at how much quarterly guidance rebounded coming out of 2020, although it just continued a steady decline from there. But the most surprising result to me was that 9% of respondents believe it’s legally required. I guess that shouldn’t come as such a shock; it does seem to be a common misconception that some sort of guidance is required to be provided to the market. The article debunks that and a few other myths about quarterly guidance.

– Myth: It’s Good for the Stock. Research shows that quarterly guidance actually increases volatility and negatively impacts stock price.

– Myth: Investors Want It. Most large institutional investors don’t want quarterly guidance since they are generally holding for 2 to 4 years, not quarters.

– Myth: Everyone Is Doing It. Data (both from this survey and elsewhere) shows quarterly guidance is no longer “in vogue.”

I’m not so sure that the move from quarterly to annual guidance with quarterly updates really does much to move the needle on the age-old issue of short-term focus versus long-term focus. In fact, back in 2021, McKinsey argued that, for most companies, long-term guidance should mean “three-year targets (at a minimum) for revenue growth, margins, and return on capital.”

– Meredith Ervine