Buffett, Dimon say quarterly profit forecasts harming economy

  • Buffett, Dimon say quarterly profit forecasts harming economy

Buffett, Dimon say quarterly profit forecasts harming economy

Dimon, in a joint interview with Buffett to CNBC, claimed that executives are often under pressure to make quarterly predictions, but the practice "can often put a company in a position where management from the CEO down feels obligated to deliver earnings and therefore may do things that they wouldn't otherwise have done", report said.

Buffett and Dimon announced they are partnering with Business Roundtable, a group of roughly 200 CEOs of major USA companies, to call on companies to consider eliminating quarterly guidance.

Neither Buffett, chairman and CEO of Berkshire Hathaway Inc.in Omaha, or Dimon, chairman and CEO of JPMorgan Chase, predict their profits every three months.

"Quarterly earnings guidance often leads to an unhealthy focus on short-term profits at the expense of long-term strategy, growth and sustainability", they said.

"Public companies should be managed for long-term prosperity, not to meet the latest forecast". JPMorgan Chase reported lower fourth-quarter earnings January 12, 2018 on weak trading revenues and one-time costs from U.S. tax reform, partly offset by gains from higher interest rates.Net income for the quarter ending December 31 was $4.2 billion, down 37 percent from the year-ago period. The analysts take the company guidance into consideration when making investment recommendations and setting price targets for stocks.

"We think the president has raised some very critical issues about trade, especially with China, around state owned enterprises, fair competition, market access, the ability to own 100% of a company, and these things should be negotiated out and the Business Roundtable supports those issues", Dimon said. Missing "the number" can often result in big, short-term stock moves.

But McKinsey & Co. found in a 2006 study that quarterly guidance didn't affect valuation multiples and didn't reduce share price volatility.

Buffett said most CEOs are good at making the right decisions for their companies' long-term future, but ending the forecasts would be one way to improve. "We are encouraging all public companies to consider moving away from providing quarterly earnings-per-share guidance".

Buffett and Dimon said they are not opposed to the current practice of quarterly and annual reporting that ensures transparency.