Removing forecasts can make investing a lot more challenging, especially for more active investors.Dusan Stankovic/iStockPhoto / Getty Images
U.S. President Donald Trump’s on-again, off-again tariff threats have created so much market uncertainty that many public companies have pulled their guidance, at least temporarily, leaving investors in the dark about what to expect in the coming quarters.
Canadian corporations such as BRP Inc. DOO-T, Canada Goose Holdings Inc. GOOS-T and Spin Master Corp. TOY-T are among the companies that have thrown up their hands when it comes to forecasting how the tariff war could impact their businesses.
“Companies are just reflecting what the rest of us are feeling,” says John Zechner, chairman and lead equity manager at Toronto-based J. Zechner Associates Inc.
Guidance is a term in investment jargon that describes the financial projections companies provide for key metrics, such as revenue, earnings per share, and adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization).
Public companies aren’t legally required to provide guidance, and many don’t, including Berkshire Hathaway Inc. BRK-A-N, BRK-B-N. Still, many use guidance to manage investors’ expectations and influence analysts’ stock ratings.
The last time companies withdrew their guidance en masse was during the early days of the COVID-19 pandemic, when global lockdowns made it almost impossible for businesses to forecast future earnings.
Removing forecasts can make investing a lot more challenging, especially for more active investors looking for near-term data to make “buy,” “sell” or “hold” decisions. A lack of guidance can also lead to more conservative investing, which works well if markets drop but could backfire when they rebound, as they did after the April sell-off.
Mr. Zechner sympathizes with corporations that don’t have the confidence to provide forecasts amid the Trump administration’s unpredictable tariff policies, which have given rise to the “TACO trade,” for “Trump always chickens out.”
“There’s no risk to pulling guidance in this environment. It’s a bigger risk to try to give guidance and then have to retract it,” Mr. Zechner says. “Some people think it’s not going to be so bad, but we haven’t seen the impact yet.”
Christine Poole, co-chief investment officer and portfolio manager at Davis Rea Ltd. in Toronto, says a company removing its guidance can be a bad sign of things to come.
“It means companies don’t have a good handle on their internal planning process,” she says.
A recent example is UnitedHealth Group Inc. UNH-N, which recently suspended its annual forecast amid surging medical costs. The company has faced several other challenges over the past year, including a cyberattack at its tech unit and a report of an investigation into its Medicare billing practices. The chief executive officer of its insurance unit was also murdered in New York late last year.
However, Ms. Poole notes most other companies that recently suspended their guidance did so for the short term, citing the tariff uncertainty. She says many are likely to reinstate their forecasts if there’s more clarity after the tariff negotiations.
While Ms. Poole says none of the companies she owns suspended their guidance, she recommends investors focus on their longer-term investment goals and the original reasons why they bought the stocks.
“It’s just so volatile right now that [investors] need to keep the longer-term focus in mind and control what you can by investing in the companies you think will do well after this plays out,” she says.
Ken O’Kennedy, chief investment officer at Vancouver-based Dixon Mitchell Investment Counsel Inc., says his firm doesn’t own any companies that recently suspended their forecasts.
Still, he says his team is factoring in the more cautious sentiment in its own estimates and getting “much more conservative” in its valuation of securities.
“I would say we’re underwriting today for about a 55 per cent chance of some kind of recession [in North America],” he says.
Mr. O’Kennedy says there are also buying opportunities when companies can’t forecast their near-term earnings confidently. However, he cautions that investors should have a good understanding of what they’re buying.
“You have to assess the business and then make your best estimate of what the earnings would look like,” he says, adding there are still estimates from Wall and Bay Street analysts that investors can reference when evaluating securities.