Kicking the Guidance Habit

Frustrated, CFOs who still provide EPS forecasts eagerly await the tipping point that will spell the death of quarterly guidance.

When it became fashionable for CFOs to provide investors with quarterly earnings guidance in the mid-1990s, they may not have realized that the practice would become habit forming. By the time finance chiefs grew weary of coming up with predictions every three months—and explaining why their companies missed previous forecasts—investors and analysts had come to expect the report. As a result, it hasn't been easy for companies to wean Wall Street and shareholders off of earnings-per-share forecasts.

Still, many CFOs did quit the quarterly grind, including those at Coca-Cola, McDonald's, and Pfizer, who announced the change earlier this decade. But for every story of a company foregoing quarterly guidance, there has been another company fearing that stopping the practice would sound alarm bells for investors and result in a tumbling stock price. "You're stuck in a Catch-22," says Jules Fisher, CFO of medical device maker Possis Medical, who continues to issue the guidance. "You're damned if you do and damned if you don't."
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Since Regulation Fair Disclosure (Reg FD) took effect in 2000, finance executives have had to be more careful about how they share material information publicly.

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