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Fundamentals and MacroeconomicsIntermediate

Guidance

Guidance is a company's own forecast of future results, such as expected revenue; changes to guidance often move the stock more than past results.

Guidance is a company's own forecast of future results, such as revenue or earnings for the next quarter or year. Changes in guidance often move a stock more than the reported numbers. Disclosure rules differ by country; in the US, Regulation FD governs how such information must be shared.

Category
Fundamentals and Macroeconomics
Reading time
3 min
Also called
Earnings guidance, Company outlook, Forward guidance (corporate)
Updated

Guidance in plain words

Results releases often include forward-looking figures — management's view of where the numbers are heading.1

On the earnings call, management usually explains the quarter, takes analysts' questions and talks about what comes next.1

In the US, Regulation FD bans selective disclosure, so guidance has to reach everyone, not just a few analysts.2

How to read guidance

  1. Find it

    Look in the press release, which often includes forward-looking information.1

  2. Listen to the call

    Management might provide guidance on the company’s future prospects.1

  3. Compare with consensus

    Is the range above, below or in line with analyst estimates?

  4. Compare with prior guidance

    A raise or cut matters more than the level.

  5. Check it was public

    Under Reg FD, if material nonpublic information is shared with certain enumerated persons, the issuer must make public disclosure of that information.2

  6. Note timing rules

    Know the timing rule: a deliberate private disclosure must be made public at the same moment, and an accidental one promptly afterwards.2

Worked examples

Example 1 — Raised guidance

Stock likely up

A hypothetical firm lifts full-year EPS guidance from $4.00 to $4.40.

Example 1 — Raised guidance — calculation
Old$4.00
New$4.40
Change+10%

The raised outlook signalled stronger numbers ahead, so analysts lifted their estimates.1

Example 2 — Cut on the call

Stock likely down

Hypothetical results beat, but on the call revenue guidance falls 5%.

Example 2 — Cut on the call — calculation
QuarterBeat
Guidance−5%

Management can provide guidance on the company’s future prospects during the call, and the cut outweighs the beat.1

Example 3 — Private hint

Must go public

A hypothetical executive hints at weaker sales to one analyst by accident.

Example 3 — Private hint — calculation
DisclosureNon-intentional
RequirementPublic disclosure promptly

Because the slip was accidental, Reg FD required prompt public disclosure.2

Corporate guidance vs central bank forward guidance

AspectCorporate guidanceCentral bank forward guidance
Who issuesCompany managementCentral bank
AboutRevenue, earningsPolicy rates
TimingEarnings releasesPolicy meetings
RulesSecurities disclosure lawCentral bank mandate

Where guidance matters

Advantages and disadvantages

Advantages

  • Management's own view of the future.
  • Gives analysts a common anchor.
  • Raises and cuts are clear signals.

Disadvantages

  • Can be set low to beat later.
  • Not every company gives it.
  • Forecasts can be wrong.
  • Rules differ by country.

Going deeper

Read as far as you need. Each level builds on the one before it.

What guidance is

Beginner

Guidance is management's own forecast of future results.1

Regulation FD

Intermediate

Regulation FD tackles selective disclosure.2 If a company tells market professionals or shareholders who might trade on it something material and non-public, it must tell the public too.2

Timing of disclosure

Advanced

Deliberate disclosures must be public at the same time; accidental ones must be made public promptly.2 Other countries use different rules.

Common mistakes

  1. Ignoring guidance

    It often matters more than the quarter.

  2. Taking it as a promise

    It is a forecast.

  3. Missing sandbagging

    Low guidance can be strategic.

  4. Assuming US rules apply everywhere

    Disclosure law differs by country.

Check your understanding

Test yourself before moving on. Each answer comes with an explanation.

Q1Guidance raised from $2.00 to $2.30. Change?
Q2Under Reg FD, an intentional selective disclosure must be made public…

Key points to remember

  1. Guidance is management's forecast.
  2. It appears in releases and on calls.
  3. Raises and cuts often move stocks.
  4. Reg FD bars selective disclosure in the US.
  5. Rules differ by country.

Frequently asked questions

Do all companies give guidance?

No, some stopped to avoid short-term focus.

Is guidance legally binding?

No, it is a forecast with risk warnings.

Is this the same as Fed forward guidance?

No, that is about central bank policy.

Further learning

Sources

This article is written in our own words. The sources below support the specific facts, rules and figures marked with a number in the text. Links open the original publisher’s page.

  1. FINRA. What Is Earnings Season? (opens in a new tab) Checked .
  2. SEC. Final Rule: Selective Disclosure and Insider Trading (Regulation FD) (opens in a new tab) Checked .

Educational content, not financial advice. Examples use hypothetical prices and simplified costs; actual fees, margin rules and regulations vary by broker, market and country. We are not affiliated with any publisher linked above. Last reviewed . Report an error or request a source credit.