Fewer CFOs will be offering investors short-term guidance during this earnings season. The heavy fog that settled into the U.S. economy more than six months ago has made it harder for them to see how 2009 will shape up and gives them an opportunity to end, at least temporarily, the pressure to provide quarterly earnings-per-share forecasts.
In recent years, business groups have tried to stem the demands by investors, analysts, and CNBC commentators to provide to-the-penny predictions about how their next quarterly financial results will turn out. The U.S. Chamber of Commerce, for instance, has long advocated for companies to wean investors away from the volatility inherent in quarterly earnings guidance and get them focused on long-term growth instead.
Since September, when the credit markets closed up and the economy’s future began to appear bleak, an increasing number of companies have shifted their guidance policies by stopping quarterly earnings guidance and trying to focus investors’ attention onto other metrics, such as expected revenue, same-stores sales, or capital expenditures. Some are instead providing earnings guidance only on an annual basis.
CFOs like Robert Rivet of Advanced Micro Devices have reminded analysts during recent conference calls that “the current environment is pretty murky, visibility is pretty low.”
Moreover, it’s pretty ugly. As major companies began sharing their latest earnings results over the past few days, their figures have fallen below market expectations. Merck, for instance, saw its first-quarter profits fall 57% compared to last year, reporting $1.4 billion in net income for Q1 today. The drug company has also reduced its 2009 revenue range to between $23.2 billion and $23.7 billion. While DuPont emphasized today that its Q1 earnings of $488 million, or 54 cents per share, were in line with previous quarterly guidance, those numbers reflect a 59% fall in profit. The chemical giant has likewise cut its full-year 2009 earnings forecast to a range of $1.70 to $2.10 per share.
Companies that have announced plans to stop quarterly earnings guidance or scale back on detailed guidance for other metrics in recent months include Aetna, Cogent Communications, General Electric, Ingram Micro, Intel, Knoll, Nexstar Broadcasting, Unilever, and Universal American. In a survey released earlier this month, one-third of 614 corporate investor-relations professionals reported their companies’ guidance polices have changed because of the financial downturn. Most of them have either limited or eliminated guidance, although a few reported that they have actually increased the forecasts their companies provide, according to the National Investor Relations Institute.
“Companies are not sure as to what is going to happen,” explains NIRI president and CEO Jeffrey Morgan. As predictions vary over whether the economy will recover this summer, this fall, or not until 2010, companies are reticent to publicize detailed forecasts.
Remarking last week on CNBC why Intel was not specifying its future revenue numbers, and instead saying revenue would be “approximately flat to the first quarter,” CFO Stacy Smith said the economic uncertainty restricts the information his company can share with investors. “It’s not clear what the shape of this [economy] looks like over the course of the rest of the year, and that creates a level of variability around putting a specific point estimate out there on revenue,” he said.