Risk & Compliance

The End of Guidance?

Pfizer is the latest company to consider ditching earnings predictions.
Helen ShawMarch 16, 2006

Pfizer Inc. may soon stop issuing quarterly earnings per share guidance, a move that would make the pharmaceutical giant part of a growing trend. Companies such as General Motors and Google are mum on earnings and many companies have decided to limit the guidance they issue.

According to a recent McKinsey survey of 124 companies, almost one-quarter of respondents did not issue earnings guidance in 2005. The survey also found that approximately 12 percent of companies plan to reduce how frequently they issue earnings guidance; only 5 percent expect to issue it more frequently.

Despite press reports earlier this week, Pfizer has not yet made a final decision to stop issuing quarterly guidance, says spokesman Ron Aldridge. But in an apparent move to prepare analysts and investors for such a step, Pfizer’s February earnings release included both earnings guidance and “dashboard” information about the company’s expectations for product sales, growth, and productivity of research and development.

The dashboard information is intended to give investors a better window into the factors that drive the company’s performance, says David Shedlarz, vice chairman at the New York-based pharmaceutical company.

“The guidance we are providing is much more granular,” notes Shedlarz, who claims the result will be “greater transparency and opportunity to have an ongoing dialogue,” with investors. The new information, he says, will also prevent a short-, medium-, and long-term outlook for the company, he adds.

“With this in hand, investors will have a better appreciation of our plans and be in an improved position to discuss the company’s actual results in a more meaningful fashion,” commented Shedlarz.

Pfizer’s new approach to reporting is likely driven by changes affecting the entire pharmaceutical industry, which is under pressure as exclusive patents expire and new products emerge. Pfizer’s stock price is still recovering from a big dip in 2005. Although the company expects to lose its exclusive right to market certain products, it expects its revenue growth to resume in 2007 from new medicines. The company plans to introduce 10 new products within the next two years, said Shedlarz.