Delay that Financial Guidance

The company released financial targets in February, leaving a good deal of wiggle room to accommodate the unpredictabilities of a new administration. Then came April tariffs and a trade war, with steep financial reverberations in every country in which the firm operates. Executives met for a flurry of meetings: Now what? Revise the guidance? Pause on guidance? Give up and drink margaritas?

It's a conundrum. Before this month, Q1 earnings revisions were already lowered by a margin 22% larger than five- and ten-year averages, according to data from FactSet. During the pandemic, myriad companies simply stopped providing guidance altogether, as entire industries acknowledged that they had no idea what was going to happen next. Experts note that today’s situation is very different. “The 'throw your hands in the air' response was based on the entire world and economy going through the same thing simultaneously,” says Peter McDermott, head of the Corporate Affairs practice for North America at Korn Ferry. This time around, companies’ strengths and weaknesses differ markedly, as will their paths forward. “The public and investors may not have the same patience for organizations not giving guidance,” he says.

The question, of course, is what to do instead. Delta was the first big company to step up to the plate, withdrawing its full-year financial guidance, and saying the firm will update its forecasts later in the year as details become clearer. “As more companies miss guidance, they have to weigh if there’s a real benefit in providing it, while they’re resetting to provide more accurate expectations,” says Jane Edison Stevenson, global vice chair of Korn Ferry.

At most companies, finance staffers are holed up, hurriedly creating revised financial models and plans—or series of plans. Many multinationals are so large that they have pieces of both business and supply chains  touching dozens of countries involved in both trade war turmoil and US reputation concerns, and no real way to gauge the overall impact. Adding to the difficulties, a number of firms had already released revised guidance in response to shifting government and international contracts. “Everyone’s waiting for the other guy to say something,” says David Vied, global sector leader for medical devices and diagnostics at Korn Ferry. “No one wants to alert shareholders to a major problem if they don’t have to.”

Experts strongly advise that firms speak up, whether or not they’re providing guidance, with an emphasis on what the firm is doing. “It’s very easy to get caught in the anxiousness and complaining about what’s happening,” says Matt Bohn, senior client partner in the Technology practice at Korn Ferry. Instead, he advises a solutions-oriented approach. A strong response might include: (1) transparency about current market exposures; (2) the firm’s plans to address those challenges; then shifting focus to (3) how the organization will pivot to fill market gaps or meet new business opportunities, such as a new potential sector or emerging technology. The idea is to say, "We’ve revised our earnings and have this plan of attack, and are also shifting to XYZ new markets, and don’t think it will be that bad."

The messaging should be transparent, calming and, above all, honest, because investors appreciate steadiness and truthfulness, says McDermott. Adding a degree of difficulty, each message not only needs to be carefully crafted, but also adaptable to whatever may happen in the coming months. “It’s even more challenging to backpedal,” he says.

Learn more about Korn Ferry’s Organization Strategy capabilities.

Read more This Week in Leadership articles