Company Earnings Guidance Is Wrong About 70% of the Time

Study Finds Inaccurate Forecasts Influence Earnings Estimates Given by Wall Street Analysts
Illustration of a stock analyst evaluating numbers
The study surveyed 357 CFOs, investor-relations professionals and other executives at public companies in 2021. (woraput/Getty Images)

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The pandemic may have upended businesses, but surprisingly it did little to dent managers’ misplaced confidence in their earnings forecasts, new research shows.

More than three out of four financial professionals said there was a strong likelihood that their companies’ earnings would fall within the guidance they give to investors — but this only happens rarely, according to the researchers. The study surveyed 357 CFOs, investor-relations professionals and other executives at public companies in 2021.

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The paper finds that companies offer accurate guidance about 30% of the time. Their inaccurate forecasts, in turn, influence the earnings estimates given by Wall Street stock analysts. That helps explain why only a very low percentage of companies deliver results within analysts’ estimates, according to data compiled by Bloomberg for the S&P 500 over the past 60 quarters. In the first fiscal quarter of 2023, companies in the bellwether index reported earnings in line with estimates just over 3% of the time.

“Managers actually do a relatively poor job of predicting earnings outcomes. When we asked them for their honest assessment of whether earnings would fall in their forecast, they way overestimated,” said Paul Hribar, an accounting professor at the Tippie College of Business at the University of Iowa and one of the authors of the study. “The overconfidence can be due to hubris, but there’s also miscalibration.”

There were more than a few miscalibrations in the first quarter, both positive and negative.

Chart tracking the accuracy of earnings guidance


Retailer Target Corp., for instance, beat the high end of its first-quarter earnings guidance by 15 cents a share, but then disappointed investors by saying its earnings outlook for the year hadn’t changed from its prior view of $7.75 to $8.75 a share. Hotel chair Marriott International Inc. trounced the forecast it gave for the quarter, then boosted its full-year guidance by about 50 cents a share thanks to a post-pandemic rebound in travel.

Paul Hribar


Managers remained surprisingly optimistic in their ability to predict future performance, even amid the volatility and uncertainty wrought by COVID-19. While about half of firms surveyed had to retract some guidance early on in the pandemic, most managers didn’t change their overall guidance policy because of it.

The researchers also conducted in-depth interviews with some financial managers, most of whom admitted to issuing overly conservative guidance while their own private expectations about earnings were more optimistic, typically above the midpoint of their range. That helps explain why most earnings “surprises” are to the upside — historically about 75%, according to data compiled by Bloomberg.

“Managers seemed willing to say, ‘That is how the game is played. We want to beat estimates,’ ” Hribar said.

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