Warren Buffett, Jamie Dimon: Quarterly profit forecasts hurt economy

Warren Buffett, Jamie Dimon: Quarterly profit forecasts hurt economy

Buffett, who runs Berkshire Hathaway Inc., and Dimon, CEO of JPMorgan Chase & Co., said in a joint Wall Street Journal editorial that they are encouraging all public companies to consider moving away the practice, arguing that it can stifle long-term investments.

They told companies to move away from providing quarterly guidance.

Dimon said CEOs can influence their quarterly results by not opening branch offices, cutting research and development spending, reducing their marketing and other decisions that could hurt future earnings. At JPMorgan's investor day in February, he called on companies to stop providing the guidance, saying earnings are hard to predict and companies have an incentive to fudge numbers. JPMorgan Chase reported lower fourth-quarter earnings January 12, 2018 on weak trading revenues and one-time costs from U.S. tax reform, partly offset by gains from higher interest rates.Net income for the quarter ending December 31 was $4.2 billion, down 37 percent from the year-ago period.

A less compelling argument is that corporate EPS guidance more or less anchors analysts' EPS estimates.

Formula 1 Canadian Grand Prix preview
Today I think we had a couple of small lock ups, but as you continue to push the setup there are areas that can be affected. Mercedes were first out in Q3 and smashed the records, Bottas topping Hamilton in 1:10.857 before Vettel beat that.

The Business Roundtable has thrown its support behind companies abandoning the practice of quarterly forecasting, Dimon says. Despite the short-term hit to results from the tax bill, chief executive Jamie Dimon hailed the measure as a boon for the USA economy."US companies will be more competitive globally, which will ultimately benefit all Americans", Dimon said in a news release.

It is a long-simmering debate but one that has gotten more attention in an era when activist investors are more vocal about pushing companies to deliver on their promises. Bloomberg LP, the parent of Bloomberg News, is a member of the Boston-based non-profit group.

"I've never seen a company whose performance has improved by having some forecast out there by the CEO that we're going to earn X", Buffett said.

Quarterly earnings guidance works like this. Companies including Unilever NV, Facebook Inc., GlaxoSmithKline Plc and BP Plc have scrapped the practice in favor of multi-year outlooks, according to the report.

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