That does not mean companies were not looking at the beverage company with a little bit of envy, as half said they would prefer to offer no short-term guidance. Overwhelmingly (75%) gave as the reason for this the belief that organizational and investor requirements for short-term business management of meeting earnings guidance undervalues a company’s longer term potential of strategic investments, according to The Valen Group’s The Realities of Financial Guidance report.
However, only 10% plan to follow Coca Cola, primarily due to
- 74% – fear a negative impact on investor relations could cause increased anxiety and distrust
- 72% – concerned about eliminating an important investor evaluation tool.
In fact, 37% acknowledged that blue chip companies were in a different position than others and could risk stopping guidance. Executives cited that the ability to shoulder the risk is primarily due to their market leadership positions, the vast amount of information available on their organizations, and the industry standards they set. As a result, analysts will continue tracking them and investors will still invest, whether or not guidance is provided.
As it currently stands, 63% of the public companies provide earnings guidance primarily to meet US Securities and Exchange Commission (SEC) guidelines and analyst demands for company information and 45% of private companies provide guidance primarily to institutional investors to continue investment flow into their businesses.
Gus Valen, CEO of The Valen Group, suggests executives should not feel constrained by financial reporting. “Having a vision of where you want your company to go and a strategy of how to get there is critical to an organization’s long-term success but…” Valen continues “…through guidance to investors you can signal the financial milestones that give your investors confidence in your ability to deliver on that vision.”
The survey polled 213 companies between February and April 2003 across five core industries: Consumer Goods, Financial Services, Food & Beverage, Insurance and Retailing. A copy of the survey can be obtained by calling (513) 241-7640 ext 100.