Ace gives up on earnings guidance
It's fair to say that the fundamental premise of earnings guidance has changed significantly over the past few years. It was once a best practice of sorts -- an attempt to inform the market and keep expectations in line. But Reg FD has led to a sea change in thinking in the IR community. And more companies are concluding that continuing to offer guidance simply isn't worth the Reg FD hassles.
A recent survey from NIRI found that 88 percent of companies in 2012 provided some form of guidance (either financial, non-financial or both), compared with 90 percent in 2010 and 93 percent in 2009. About 76 percent reported providing financial guidance compared with 81 percent in 2010 and 85 percent in 2009.
These trends will no doubt continue.
A good recent example is that Ace, the insurer, has decided to limit its guidance going forward.
"After giving considerable thought to this subject, including a number of discussions with analysts and shareholders, we've decided that we will stop providing explicit operating EPS and catastrophe-loss guidance after 2013," Phil Bancroft, CFO of the big insurer, told analysts, as reported by a Bloomberg article.
The company will still provide some guidance in regard to its investment portfolio, however. In this case, a big issue is the difficulty in issuing solid guidance because of volatile weather and pricing issues.
Ending some forms of guidance might actually improve relations with analysts. More than a few have questioned the value of guidance in general by Ace management. One analyst was quoted saying, "Taking away the guidance, beginning next year, I think it's going to make our lives a lot easier, just given the nature of how you all have done it."