Earnings Guidance

“Of the 109 companies to provide quarterly guidance, over 80 % was negative for 3Q. This is the worst guidance ratio since 2006, just as 4 of the last 5 quarters each climbed to set a new worst. Other than during the recession, usually a super-majority of companies issue negative pre-reporting guidance.

We have repeatedly argued that guidance ratios are noisy and unreliable. Only 20 % of companies provide quarterly guidance, the mix changes from period to period, the ratio is not earnings weighted and does not differentiate between a 1 % or 10 % change in guidance.

Bottom-up EPS growth and estimate revision trends are more insightful. Btm-up 3Q S&P EPS declined only 3.2 % among the least in two years and est. EPS growth just prior to reporting is the highest in over a year at 4.1 %. Our $28 3QE EPS implies the usual 3-4 % weighted average beat.” (David Bianco, Deutsche Bank)

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