The number of U.S. companies giving financial forecasts plunged as the longest recession since the Great Depression and an uneven recovery made it harder to predict earnings.
The CHART OF THE DAY shows the number of projections fell to 5,788 last year and 3,994 this year through Sept. 30 from 10,530 in 2004, according to Bloomberg data. Companies became more reluctant to give forecasts in the second half of 2008 as the economy sank into a recession that lasted until June 2009.
“If you give a forecast, the market holds you to that,” said Mark Freeman, a money manager who helps oversee $10.5 billion at Dallas-based Westwood Management Corp. “Companies that subsequently miss that forecast, the market tends to punish rather severely.”
Management teams remained reluctant to give investors estimates that may prove overly optimistic for the next quarter or year as growth in U.S. gross domestic product slowed to 1.7 percent in the second quarter. Some may have been “low-balling” their estimates, said Timothy Ghriskey, chief investment officer at Solaris Asset Management LLC.
“That’s one reason we’ve seen so many positive surprises when earnings are reported,” said Bedford Hills, New York-based Ghriskey, whose firm oversees $2 billion. “Certain companies have been lowering guidance so that results are more likely to beat that guidance and less likely to disappoint.”
More than 70 percent of Standard & Poor’s 500 Index companies have topped the average analyst earnings estimate for five straight quarters, the longest streak in Bloomberg data going back to 1993.