This Coke's the Real Thing
Wall Street's all afizz over a recent decision by Coca-Cola Company to stop releasing forecasts of its future earnings every three months.
If other big companies follow the soft drink king's lead, American business could be radically restructured. More investors would pick a stock for its long-term value rather than speculate on whether a company may beat its own guesses on earnings.
Managers with stock options would be less tempted to manipulate numbers in order to meet expectations and boost a stock price every few months. Stocks wouldn't be treated like an instant lottery for quick gains. And most of all, CEOs could concentrate more on building up staff, nurturing ideas, building up market share, and constructing large capital projects.
Earnings forecasts lost much of their credibility in the 1990's stock boom-and-bust. Coke's reform could mark a return to dealing with a company's fundamentals.
Like a few other companies that have gone this way, Coke runs a risk: It will be providing less, not more, information to financial analysts, many of whom only ask if a company is beating its own projections rather than research a company in all aspects.
Any surprises that show up in a company's prospects could cause its stock to gyrate. To overcome that, companies should release more basic data to analysts and investors.
If a company has confidence in itself, it will take the risk of operating for the long haul and not just play a guessing game with analysts over a single number.