Top of Mind: How Quarterly Guidance Lost Its Way

Large U.S. companies with strong analyst coverage -- including Coca-Cola, an organization known for consistently meeting earnings expectations -- have stopped providing quarterly earnings guidance within the past several years. But if a panel formed by the U.S. Chamber of Commerce has its way, quarterly guidance will be a thing of the past for all businesses. Early this year, the panel recommended an end to quarterly guidance so that companies and investors will adopt a more long-term performance outlook -- and the idea isn't getting much resistance. The CFA Institute, the Business Roundtable, the National Investor Relations Institute, and SEC Chairman Christopher Cox have all voiced their disapproval of quarterly guidance, which they believe results in poor business decisions and numbers games geared toward achieving short-term targets.

Quarterly guidance results in companies deferring decisions on such things as acquisitions, technology investments, and hiring at the expense of good business strategy, says Gene Marbach, Group Vice President, Investor Relations Practice, at New York-based Makovsky & Company.

Another downside of frequent guidance relates to its costs. McKinsey research shows that the majority of companies that currently provide guidance say that it's costly in management and employee time.

Some companies that have moved away from providing guidance on a quarterly basis are providing annual guidance instead.