This morning on CNBC I heard a discussion regarding corporate guidance, the act of management of public traded companies offering their outlook on earnings, sales, margins, units (etc) for the current period and the full year. Jim Cramer made the comment that he thinks (paraphrasing) all companies should just pull their guidance and focus on running their businesses with an eye on helping the pandemic cause, and importantly keeping people employed during this unprecedented crisis. I agree with ALL of that, including pulling their FORMER guidance, BUT I think each company should decide what is the most important metrics investors, their employees, their customers and those in their supply chain should focus on, and they should offer mid-quarter updates, with the caveat, that visibility is beyond poor and the exercise is an effort to remain transparent when we all should be given each other the benefit of the doubt.
For those who are trying to be constructive on the stock market, and individual stocks, it is nearly impossible to consider where to initiate a long position if there are no guideposts, a wholesale pulling of forward guidance would argue for more of a discount being put on stocks during this bear market that is certainly to feature at least a two-quarter recession.
I have no idea which companies will benefit from more or less transparency. Take Apple (AAPL) for example, a company that rarely ever offers intra-quarter data points on their business, the company pulled their guidance in February at the onset of the lockdown in China due to the coronavirus, and the stock has held up relatively well compared to the S&P 500 (SPX) down only 26% from its February all-time highs and down only 18% on the year vs the SPX down 23%. I would also add that AAPL is up 26% from a year ago, and up 40% from its 2019 low made in June.
In 2018, AAPL announced it would stop reporting (and guiding) iPhone units sold in its quarterly reports leaving analysts and investors with less transparency on a product that at the time accounted for 70% of the companies sales. It didn’t hurt the stock in 2019, even after issuing its first negative pre-announcement in more than a decade on the first trading day of the year, the stock rose 100% from Jan 3rd 2019 to the end of the year, closing up 85%, gaining more than $600 billion in market cap at its highs in February.
We live in a time with tremendous distrust of our institutions, no matter where you sit politically, you likely share this view. In this multi-pronged crisis we are facing now it has been clear that many companies that are household names, that we usually take for granted are stepping up and leading the way as it relates to their employees and customers, and putting their stakeholders third in line. That’s some bold leadership when you consider the fiduciary responsibility that executives and boards of publicly traded companies have. But I would add that it might feel like a sigh of relief for CFOs not to have to make guesses of their business, but I assure you they are doing it, and whenever possible without fresh eps, sales, and margin guidance, companies should figure out ways to be as transparent as possible. Missing an outlook in an uncertain time is not the thing the C-Level suite should fear will cost them their job, and disciplined attempts to keep stakeholders abreast of developments (good or bad) should be rewarded (see Gov Cuomo of NY).