Earnings Guidance: The Current State of Play

©June 2009, 52 pages

In November 2003, Deloitte, in association with Financial Executives Research Foundation, released an executive report entitled, “Meeting the Street: A Discussion of Earnings and Other Guidance Provided to Investors.” Based on a Deloitte survey and interviews with a group of corporate and business leaders, the report examined the practice of providing analysts and investors with forward-looking earnings guidance. The report concluded that there was no one-size-fits-all answer when it came to what forward-looking information should be provided to the public. What has changed since 2003? This follow-up report finds that some companies are content with their decision not to provide any guidance, but others are hesitant to follow in their footsteps. As companies continue to evaluate their practices in this area, our research findings and recommendations may prove helpful:  Corporate management and boards should be equally mindful of the risks and benefits associated with the practice of providing specific earning targets to the market.  Despite the recent economic downturn, companies have only made marginal changes to their guidance policies.  Companies may want to reconsider their current practices and determine the real benchmarks of their success. This should help identify other metrics to demonstrate performance and communicate progress.  In deciding whether or not to provide earnings guidance, management should consider:  The ability to forecast performance  The appetite for share price volatility  Industry practices regarding earnings estimates  The appropriate communication of any changes in guidance policies.