When will Apple get rid of earnings guidance?
Apple's big quarterly earnings miss apparently revealed to management that when it comes to earnings guidance, it needed a new approach.
The world had become accustomed to the bellwether company beating the basic estimates of earnings per share, quarter after quarter. But in the wake of the big miss, the company will offer a different type of guidance aimed at giving analysts and the public a more reasonable shot at predicting the final numbers.
For example, going forward Apple will report guidance on items such as its earnings per share (EPS) within a range.
CFO notes that, "In the past, Apple gave a single data estimate for its guidance. Apple CFO Peter Oppenheimer admitted that giving a single number was 'conservative' and was one in which it had merely 'reasonable confidence' it would achieve. The change is a big one for Apple, according to one analyst on the call, who noted the company's actual EPS would often far exceed its previous guidance. Companies tend to report a lower number if they want a more positive reaction in their share-price movement following earnings news."
There is no law or rule from the SEC or any SRO that requires earnings guidance. IR teams offer such guidance as a service to analysts. Indeed, the recent economic volatility has prompted many companies to stop offering guidance all together, reasoning that the guidance in the end doesn't mean much and that they are merely opening themselves up to criticism and potential litigation. It would not be surprising if Apple in the near future decides to join this trend.
At some point, the guidance numbers may simply not mean much or open them up to charges of misleading people. Why take that risk? If the company continues to miss earnings estimates, this will perhaps become inevitable. I'm sure it has been discussed internally. The reality is that in tough times companies in complex supply chain and end-user markets will have trouble predicting earnings internally with any certainty. -Jim