Earnings Guidance Takes a Dip

Companies are still making earnings predictions but in slightly fewer numbers, according to a new survey.

The murkiness of the economic future has discouraged some companies from making earnings forecasts — but they’re still in the minority. In a survey released today by the National Investor Relations Institute, 60% of respondents are giving their shareholders earnings guidance this year, compared to 64% who were making the predictions last year.

The IR professionals cite greater difficulties in their companies’ ability to predict earnings, presumably because of the economic crisis, as the reason for stopping this type of guidance. Still, NIRI says this slight dip in its annual survey of the number of IR professionals giving guidance on their earnings-per-share results shows its members are making “measured, rather than dramatic, changes to their forward-looking guidance policies.”

Outsiders’ expectations are keeping the habit of earnings forecasts alive. The survey of 515 IR professionals shows that 84% continue to give guidance to keep financial analysts’ and the investors’ expectations reasonable, while 46% do so to try to limit volatility in their stock price.

Nearly half of the respondents that no longer provide earnings guidance stopped the practice in the past six months, a trend which was evident in the beginning round of investor conference calls made during the most recent earnings season. CFOs have slowly tried to shift investors’ attention to such other metrics as expected revenue, same-store sales, or capital expenditures.

Some companies have also limited their earnings guidance to an annual outlook. In this year’s NIRI survey, 84% said they give a 12-month forecast, whereas last year only 55% did so.

Companies that have announced plans to stop quarterly earnings guidance or scale back on detailed guidance for other metrics in recent months include Aetna, General Electric, Ingram Micro, Intel, Knoll, Nexstar Broadcasting, and Unilever. In a separate NIRI survey released last 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.

To be sure, most companies still making some sort of forecast. Just over 80% in the survey released today provide guidance on other types of financial metrics beyond EPS figures. These measures include capital expenditures (expected outlay provided by 67% of respondents), revenue or sales (63%), tax rate (62%), operating expenses and margins (37%), and cash flow (36%).

As for nonfinancial measurements, 55% of IR professionals say their companies give their investors an idea of how they see outside forces affecting their business down the road. For instance, 73% make qualitative statements about market conditions, 68% talk about their industries’ future, and 67% touch upon trend information that could affect the company.

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