"Our Children and Grandchildren are not merely statistics towards which we can be indifferent" JFK

Tuesday, March 8, 2011

Stocks react to a made up number (Herb Greenberg) and guidance is a myth

The quarter guidance game is a myth

CNBC Stock Blog
By Herb Greenberg
March 8, 2011

Shocker: Contrary to what you probably believe — at least contrary to my belief! — most companies do not give quarterly earnings guidance.

According to Factset, which did a run at my request:
  • Only 96 of the S&P 500 give quarterly earnings guidance.
  • 64 offer sales guidance.
  • 50 give both quarterly sales and earnings guidance.
The story is much different with annual guidance, reflecting a growing trend of recent years, as companies have tried to pry themselves from such short-term orientation.

Further, according to Factset:
  • A more robust 225 give annual earnings guidance.
  • 144 give annual sales guidance.
  • 116 give both annual sales and earnings guidance.
The grand finale: Only 30 give quarterly and annual earnings and sales guidance.

Moral of the story: The quarter guidance game is a myth. All of that fuss about missing, meeting and beating every quarter is mostly the result of analysts conjuring up their own numbers, resulting in a consensus that the companies than either miss, meet or beat.

Which means, in the end, stocks react to a made-up number.

Absurdity, squared.

Read More Herb Posts

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