Post by LFC on May 31, 2023 21:12:37 GMT
Corporate earnings guidance sucks. (archived link)
The pandemic may have upended businesses, but surprisingly it did little to dent managers’ misplaced confidence in their earnings forecasts, new research shows.
More than three out of four financial professionals said there was a strong likelihood that their companies’ earnings would fall within the guidance they give to investors — but this only happens rarely, according to the researchers. The study surveyed 357 CFOs, investor-relations professionals and other executives at public companies in 2021.
The paper finds that companies offer accurate guidance about 30% of the time. Their inaccurate forecasts, in turn, influence the earnings estimates given by Wall Street stock analysts. That helps explain why only a very low percentage of companies deliver results within analysts’ estimates, according to data compiled by Bloomberg for the S&P 500 over the past 60 quarters. In the first fiscal quarter of 2023, companies in the bellwether index reported earnings in line with estimates just over 3% of the time.
“Managers actually do a relatively poor job of predicting earnings outcomes. When we asked them for their honest assessment of whether earnings would fall in their forecast, they way overestimated,” said Paul Hribar, an accounting professor at the Tippie College of Business at the University of Iowa and one of the authors of the study. “The overconfidence can be due to hubris, but there’s also miscalibration.”
More than three out of four financial professionals said there was a strong likelihood that their companies’ earnings would fall within the guidance they give to investors — but this only happens rarely, according to the researchers. The study surveyed 357 CFOs, investor-relations professionals and other executives at public companies in 2021.
The paper finds that companies offer accurate guidance about 30% of the time. Their inaccurate forecasts, in turn, influence the earnings estimates given by Wall Street stock analysts. That helps explain why only a very low percentage of companies deliver results within analysts’ estimates, according to data compiled by Bloomberg for the S&P 500 over the past 60 quarters. In the first fiscal quarter of 2023, companies in the bellwether index reported earnings in line with estimates just over 3% of the time.
“Managers actually do a relatively poor job of predicting earnings outcomes. When we asked them for their honest assessment of whether earnings would fall in their forecast, they way overestimated,” said Paul Hribar, an accounting professor at the Tippie College of Business at the University of Iowa and one of the authors of the study. “The overconfidence can be due to hubris, but there’s also miscalibration.”
