FTSE 100 shuns US-style earnings guidance

UK companies are defying pressure to issue earnings per share guidance in the style of their US counterparts, reveals research by the IR Society.

Some 65 percent of FTSE 100 companies provide some form of qualitative guidance – principally commentary on EPS, revenue, profit or other operational metrics, says the IR Society, while 40 percent offer guidance on other KPIs.

Only 9 percent take the US approach in providing quantitative EPS guidance, despite a ‘background of pressure on companies to provide more guidance reflecting US practice and attitudes in investment bank research departments,’ says a society press release.

The vast majority (85 percent) of FTSE 100 companies offering guidance over the past two years provide an annual outlook or long-term view of two-to-four years. Just 5 percent guide on a quarterly basis. UK firms also prefer more general guidance, states the research, compared to around half of US companies that provide some form of EPS guidance.

Welcoming the findings, John Dawson, chairman of the IR Society, says: ‘These findings suggest a difference in approach between US and UK companies over guidance strategies, with guidance provided by UK companies being a lot less prescriptive and specific. The society believes that detailed quantitative guidance can encourage short-termism and can act as a hostage to fortune.’

Dawson adds that UK companies should take reassurance from the findings. ‘They do not have to give quantitative guidance that amounts to providing a profits forecast,’ he concludes. ‘Directional and qualitative guidance is just as effective.’

The IR Society adds that according to a recent membership survey, guidance is currently the most important issue among its members.