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Dramatic market moves make the value of a theoretical crystal ball that much higher. Sadly for investors in US companies, the next best thing — regular guidance from company executives on the near-term path of profit — just got more elusive. Giant retailer Walmart and Delta Air Lines both stepped back from their forecasts on Wednesday. Capricious tariff announcements from the White House are clearly why.
It is not hard to see where these companies are coming from. Volatility is extreme. Walmart’s stock had fallen 10 per cent in 2025 up to the point when stocks rebounded as planned tariffs on almost everyone were walked back. Delta’s shares were down 40 per cent. The intricate planning companies conduct in order to be shareholder-friendly suddenly had become an exercise in futility.
Earnings guidance is a curious phenomenon but it is understandable that public market investors like it. Predictability makes for more accurate models. Companies have built elaborate investor-relations functions around keeping mutual fund investors happy, while remaining compliant with US securities law when it comes to “forward-looking statements”.
Companies providing earnings guidance should intuitively have a cost of capital advantage. Delta, a rarity, discloses its corporate weighted average cost of capital, which it pegs at just 8 per cent. One component of this number is the “beta” that measures how volatile the company’s shares are compared with the wider market. Another is the risk premium that investors demand for holding assets that are not government bonds. Transparency ought to lower those numbers.
At the same time, guidance can become a distraction for managers. A recent academic study investigated companies that, when the pandemic hit, halted existing policies of sharing earnings projections. Those who chose not to resume the practice later achieved “positive abnormal returns, suggesting they were strong performers previously deterred from stopping guidance by anticipated market penalties”.
Some companies will stay the course. Lakeland Industries, a small listed manufacturer of hazmat suits and firefighter uniforms with factories in Vietnam, stuck by its financial expectations after US President Donald Trump backtracked on his tariff plan. “I mean, we’re one tweet away from a 46 per cent tariff,” CEO Jim Jenkins shrugged in a call with analysts on Wednesday afternoon. “I guess I’m of the view that at this point we’re sticking with our current guidance.”
Trump’s erratic policies will undoubtedly lead other companies to stop sharing projections because they can no longer do so reliably. The gap between analyst models and actual results will widen. As it should: the idea that outsiders can predict earnings for multibillion-dollar companies with precision is already somewhat odd. Analysts will have to go back to doing their own work, and getting it wrong more often.
sujeet.indap@ft.com
