In a previous blog post, we discussed certain high-level considerations for first-quarter 2020 earnings releases and guidance in the context of the macroeconomic uncertainty brought about by the novel coronavirus (COVID-19) pandemic. We indicated our expectation that a significant number of registrants would elect to withdraw guidance in light of this uncertainty.
To get a more comprehensive view of how registrants have approached financial guidance, we analyzed disclosures in earnings releases by off-calendar year-end companies furnished with the Securities and Exchange Commission (SEC) on or after March 16, 2020. As noted in greater detail below, a majority of companies issuing earnings releases during this period have withdrawn or suspended guidance. This post presents the results of our analysis.
At 33 earnings releases, our sample size was relatively small, but we believe this survey provides some helpful insights with respect to the approaches being taken by public companies. Our review was limited to companies that met the following criteria:
- Are listed on either the New York Stock Exchange or the Nasdaq Stock Market.
- Have a prior history of providing quantitative financial guidance on a quarterly and/or yearly basis.
- Filed an earnings release between March 16, 2020 and April 9, 2020 under Item 2.02 of Form 8-K following the conclusion of the quarter being reported.
We did not include within our survey pre-releases filed by public companies outside of their regular earnings release cycle (on the premise that the inclusion of pre-releases might skew our results given the fact that companies filing pre-releases might be more likely to be among the companies that are withdrawing or suspending guidance).
Of the 33 public companies fitting the criteria above, we discovered the following results:
- 67% (22 companies) either withdrew their existing guidance (in full or in part) or suspended their practice of providing quarterly guidance.
- 21% (seven companies) provided updated guidance, including five companies with updates indicating an expectation that the COVID-19 pandemic would have a negative effect on their results and two companies (Conagra Brands and General Mills) that made positive adjustments to their existing financial guidance.
- 6% (two companies) provided guidance with respect to their next fiscal quarter, which was consistent with their prior practice.
- 3% (one company, Landec Corporation) reiterated previous guidance for its current fiscal year ending May 31, 2020, but, in doing so, the company excluded “any potential impact of the COVID-19 pandemic” from its forecasts and did not provide guidance for its fourth quarter, which was inconsistent with past practice.
- 3% (one company, H.B. Fuller Company) suspended its customary full-year guidance and instead provided guidance for the next fiscal quarter.
The companies that provided either updated guidance or new quarterly guidance generally did so with a significantly greater gap between the high and low range of their guidance compared to prior disclosures.
As part of our review, we identified the following different approaches to financial guidance disclosure that we believe worthy of mentioning:
- IHS Markit Ltd. made projections based on three scenarios: a recovery in the third quarter of 2020, the fourth quarter of 2020, or 2021. In each scenario, the company provided its qualitative assumptions for what such recoveries would look like for three of its four operating segments and its quantitative assumptions, including expected reductions in revenues and increased expenses, to arrive at its updated adjusted EBITDA and adjusted EPS guidance.
- MSC Industrial Supply Co, Inc. indicated that they would provide “monthly updates on average daily sales developments following […] month-end close, as well as comments on the business trends that [management has] seen over the course of the month” for the duration of the heightened uncertainty caused by the COVID-19 pandemic.
- Darden Restaurants, Inc. withdrew its guidance, but included in its earnings release information relating to the decline in same-restaurant sales for the first three weeks of its fourth quarter (the only available fiscal weeks at the time of the announcement) and, on its earnings call, provided fourth fiscal quarter trends by fiscal week for each of its reporting segments.
Key Takeaways for Public Companies
Our survey highlights what we have been hearing from our clients—the unfolding COVID-19 pandemic and the resulting economic turmoil make it difficult to predict what the future will look like. As reflected in the survey results above, there will be many public companies that elect to suspend or withdraw guidance as a result of the tremendous economic uncertainty arising from COVID-19, but approaches will differ, and there will continue to be some public companies (albeit, potentially, a minority) that elect to continue to provide guidance during these uncertain times. Ultimately, the determination of whether to continue to provide guidance will require judgment and be very fact-specific (depending on, among other things, the industry of the public company and how COVID-19 has impacted such industry).