SAN FRANCISCO (CNN/Money) -
Coke may add life, but the question stock-watchers are asking this week is whether the company's decision to halt quarterly and annual guidance will add light to the firm's future business prospects, or if it will only darken analysts' ability to gauge the company's health.
The question I'm asking this week is, Should more tech companies follow Coke's lead?
First, a little background: Coca-Cola (KO: Research, Estimates) announced Friday that it would no longer provide quarterly or annual earnings estimates to investors, choosing instead to provide information it claims will assist investors in understanding the long-term goals of the business.
"We believe that establishing short-term guidance prevents a more meaningful focus on the strategic initiatives that a company is taking to build its business and succeed over the long run," said Coca-Cola chairman and CEO Douglas Daft.
Sounds good -- but doesn't it conflict with investors' cries for more disclosure in the post-Enron era? Not exactly. In recent years, quarterly estimates have proved to be a pretty shallow measurement of a company's actual health. In a competitive environment as volatile as today's, can you really predict -- down to the penny -- what your earnings per share will be four quarters from now?
Wall Street's overreliance on these numbers also has led to a number of questionable practices by companies desperate to meet targets and avoid the stock fallout triggered by a miss. "There's too much emphasis on 'Did you meet it or beat it?'" says Chuck Hill, director of research for Thomson First Call.
Some technology companies share the same view. Intel (INTC: Research, Estimates) and USA Interactive (USAI: Research, Estimates) both eschew conventional financial reporting in favor of providing analysts with key business metrics and range estimates, instead of precise predictions on future growth.
"We've never forecasted earnings per share or profitability," says Intel spokesman Chuck Mulloy. "We forecast a group of factors related to business fundamentals -- top-line revenue in a range, a range of gross margin, a range of expenses. Taking a long-term approach has worked for us."
The key to making such a move is in providing strong tools with which analysts can accurately gauge your company's long-term health. But if a company doesn't provide good enough insight in other areas (telling analysts what's happening in the current quarter, and saying how you will run the business and manage expenses based on various revenue levels), the move likely will prove damaging.
Hill recalls that when he covered Hewlett-Packard (HPQ: Research, Estimates) before Lew Platt became CEO in 1992, "the company didn't tell you anything," which led analysts to provide "guesstimates instead of estimates." He urges tech companies considering the change to avoid the mistakes of the H-P of yore, and deliver solid information to analysts.
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Others aren't so sure the move is a good one for technology companies. Dan Niles, an analyst covering Sun Microsystems for Lehman Brothers, says accurate guidance provided during these tough times is a great way for companies to gain credibility with investors.
He cautions that investors would probably "freak out if a company like Sun said they were going to stop giving guidance," thinking the move was a sign that the company was in deep trouble. But Niles agrees that Intel has done a good job with its alternative fare, providing ranges of revenues, margins, and expenses, as opposed to naming a specific number.
"Intel is doing a good job with the tools they provide investors and analysts," Hill notes. "They're not perfect, but they're darn close."
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