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Earnings Guidance Is for Wimps By Spencer Jakab

Stock futures are getting a moderate lift this morning from a pullback in Treasury yields. Earlier this week yields had approached highs last seen at the peak of the "Liberation Day" panic. I'm taking a break from Markets A.M. next week and my friends from Heard on the Street will be filling in. See you after Memorial Day!

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Et tu, Walmart?

Analysts covering the world's largest retailer will have to sharpen their pencils now that it has joined several other companies in scrapping quarterly earnings guidance (it kept it for the full-year). Leaving forecasters guessing is rarely seen as a good thing, but the blue chip got the benefit of the doubt from the market Thursday. When social-media company Snap did the same a few weeks ago, its shares fell more than 12%.

"Uncertainty" is a dirty word on Wall Street. After competitors scrapped their public forecasts, United Airlines instead took the unusual step last month of publishing two scenarios-one for a recession and another for an expansion.

That was bold, but imagine if its chief executive had been even bolder by telling the investing community that he would stop giving guidance altogether.

Unfortunately, that's a luxury mainly available to elite CEOs who are extremely secure in their jobs: Apple's Tim Cook, J.P.Morgan's Jamie Dimon and, of course, Warren Buffett, who recently announced his impending retirement after six decades running Berkshire Hathaway.

It's a shame because avoiding the short-termism of Wall Street's expectations game might be a good thing for more companies. An earlier generation of successful bosses were even greater iconoclasts. Some had little use not only for guidance but even accounting profits.

"I used to go to shareholder meetings and someone would ask about earnings, and I'd say, 'I think you're in the wrong meeting,'" said John Malone, who made investors a fortune at his complicated web of cable and entertainment companies by focusing only on cash flow. He's credited with popularizing "Ebitda," which is a financial measure some companies now use to mask weak results.

Henry Singleton might be the greatest example of an executive who delivered with minimum regard for what Wall Street thought. Teledyne, the conglomerate he founded and ran for almost three decades, was a hot stock in the 1960s. It used that currency to become a serial acquirer of dozens of companies.

When Teledyne shares turned ice-cold in the 1970s, Singleton shocked analysts by selling off many pieces of the company and repurchasing the vast majority of its stock before buybacks became more common. Teledyne's annualized returns exceeded 20%, handily beating the market.

He was "the smartest businessman I ever knew," said the late Charlie Munger , who was vice chairman of Berkshire Hathaway.

There are some smart people in C-suites today, too, but incentives matter. To have them act like owners, much executive compensation is in stock options.

Disappointing Wall Street hammers the value of those options and endangers a stream of future income for executives if they get fired. By contrast, those old-school managers who focused on long-term returns acted like they owned the business, even when they often didn't own much of it at first.

If the CEO of a company you've invested in wants to stop giving guidance, he or she might be a keeper.

Stocks I'm Watching

Cava : The chain's shares went on a Mediterranean diet in early trading, falling despite decent results and a raised growth outlook.

Bayer : The German chemicals producer is pushing to resolve lawsuits linking its Roundup weedkiller to cancer, while exploring a potential bankruptcy filing for its Monsanto unit as a backup, The Wall Street Journal reported. Shares rose.

Applied Materials : The chip-equipment maker's results broadly met expectations and it said the trade war hasn't significantly changed demand. Still, the shares fell in premarket trade.

Take-Two Interactive : The videogame maker said it would report a full-year loss and lower-than-expected sales after a delay to the next installment of the "Grand Theft Auto" franchise. The stock dropped in premarket trade.

UnitedHealth : The shares have been upgraded to critical but stable condition. They dropped 11% Thursday after the Journal reported that the Justice Department was investigating the insurer for possible criminal Medicare fraud . Its CEO resigned earlier in the week and the stock has lost half more than half of its value in the past month.

GlobalWafers : The Taiwanese chip-materials maker said it plans to invest an extra $4 billion in the U.S.

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About Me

My name is Spencer Jakab and I've been musing about money and markets for more than 30 years, including editing The Wall Street Journal's Heard on the Street column for a decade, writing two investing books and running a team of stock analysts at a global investment bank.

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May 16, 2025 06:30 ET (10:30 GMT)

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