General Electric has it right: stop giving earnings forecasts.
There are pieces of the conventional wisdom that just don’t hold up to scrutiny. The whole mug’s game of earnings forecasts is one of them.
General Electric has just joined many other smart companies (AT&T, Coca-Cola, Google, et al.) in the practice of not giving earnings forecasts — which do help to increase journalistic and stock-market churn, but which don’t bring benefits either to companies or their shareholders.
Two items worth reading on this:
- The Washington Post’s story on GE’s decision.
- Henry Blodget’s item from yesterday laying out the non-logic of playing the earnings-forecast game: Why GE Should Never Give Earnings Guidance Again
What say you?
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I like the “mug’s game” description.
The heart of the decision, seems to me, is this bit by Blodget: “…having public earnings targets encourages companies to make nearsighted decisions that hurt the long-term value of the company just to ‘make the number.’”
To borrow the summation of his Google example: Just run your business and “let Wall Street worry and wail.” Look at Jim Collins’ book Good To Great and you’ll see a LOT of that.
Right on, Chris. The good companies that don’t issue guidance are essentially saying, “We’re spending our time running this business the best way we know how. Judge us by our results.”
In my view, it’s bad enough that many public companies focus excessively on a quarter-to-quarter numbers game, rather than building the value of the enterprise the best way they can. Massaging earnings forecasts only contributes to that problem.