COVID-19 Crisis Disclosure: What About Earnings Guidance?
One of the many issues that companies are grappling with as a result of the COVID-19 crisis is what to do about earnings guidance. A Bass Berry blog addresses that issue, along with other high-level considerations for first quarter earnings releases. Here’s an excerpt:
For companies that previously issued 2020 guidance which remains in place, a gating issue is the extent to which the registrant believes that it can continue to project (with a reasonable basis) its 2020 forecasted results, taking into account the COVID-19 pandemic (which pandemic itself has a broad range of best-case and worse-case reasonable scenarios from a public health and economic perspective).
The issue of whether a registrant has a reasonable basis to potentially continue guidance will differ by industry, with companies in certain industries whose business (at least in the short term) has been so fundamentally harmed by the COVID-19 pandemic likely concluding that there is no practical ability to continue to provide guidance until there is greater macroeconomic certainty, while companies in other industries may have a closer judgment call.
Overall, we expect that a significant number of registrants, across a wide range of industries, will elect to withdraw guidance based on a determination that the uncertainties associated with COVID-19 are so significant that it is not practicable and/or advisable to continue to provide guidance.
The blog says that the negative market reaction typically associated with withdrawing guidance “may be more muted” in the current release cycle, if for no other reason than so many companies are likely to do it. The blog also suggests that companies opting to continue to provide guidance provide a broader range due to the uncertainties associated with the outcome of the crisis, and accompany that guidance with extensive caveats and detailed disclosure of assumptions about how the COVID-19 crisis will play out.
-John Jenkins, TheCorporateCounsel.net April 10, 2020
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