Elliott's Singer agrees with Buffett, Dimon on profit guidance

09 June, 2018, 22:15 | Author: Billie Castillo
  • Warren Buffett

"We're just tidying up a couple of things".

Many CEOs who take part in the common practice of providing Wall Street estimates of how much money their companies will make often feel "pressure" to meet those quarterly forecasts.

It's "sending the wrong message", Buffett told CNBC's Becky Quick in the interview. "Let's not forget how we got here: Reg FD was meant to end selective disclosure, the private guidance on future results", Santoli said.

Securities laws require quarterly reports on profits, revenue and other information but do not require quarterly forecasts.

Dimon said Thursday that about 20 percent of Business Roundtable members still do quarterly guidance and about 60 percent provide annual targets. Heading into the profit reporting season, a CEO gives forecasts of sales and profits to the Wall Street analyst community. "Public guidance was the fix for many companies".

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"Reducing or even eliminating quarterly earnings guidance won't, by itself, eliminate all short-term performance pressures that US public companies now face, but it would be a step in the right direction", Dimon and Buffett wrote.

However, companies that are in favor of issuing guidance say that it improves communications with Wall Street, lowers share price volatility and results in higher valuations.

Warren Buffett and business friend Jamie Dimon argued Thursday that publicly traded businesses can damage their long-term growth and hurt their shareholders by forecasting their earnings every three months and then making short-term decisions to "make the number".

The two men noted that companies often hesitate to spend on technology, hiring, and research and development in order to meet quarterly earnings guidance that can be impacted by seasonal factors beyond their control, such as political events and even weather.

"Short-term-oriented capital markets have discouraged companies with a longer view from going public at all, depriving the economy of innovation and opportunity", Buffett and Dimon wrote. "But it would be a step in the right direction", they wrote.

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