Way Off the Mark
By Donna Rosato

(MONEY Magazine) – Call it the year of the earnings surprise. Two-thirds of the companies in the S&P 500 beat Wall Street analysts' earnings estimates in 2003. What's more, the analysts' margin of error--about 6% overall--was the widest in 10 years, according to Thomson First Call. How did the forecasters go so wrong? The Sarbanes-Oxley law, which makes executives more accountable for the accuracy of their companies' numbers, is prompting firms to be more conservative when giving analysts guidance about future earnings. And Regulation FD, a Securities and Exchange Commission rule that prohibits companies from leaking information to favored investors, means that analysts don't have as much access to company information as they once did. Meanwhile, analysts themselves, after years of criticism for their links with investment bankers and their habitual bull market boosterism, may be pulling in their horns. Then again, maybe it's just a simple case of once bitten, twice shy. "Companies are always more conservative after there's been a recession or market correction," observes Chuck Hill, Thomson First Call's director of research. If that's right, this year's earnings surprises may prove to be less, well, surprising. --DONNA ROSATO