Full-year guidance is a publicly traded company’s forecast of its expected financial performance for its entire fiscal year. This forward-looking statement typically includes projections for key metrics such as:
- Revenue or Sales: The total amount of money the company expects to generate from its operations over the full year.
- Earnings per Share (EPS): The portion of a company’s profit allocated to each outstanding share of common stock. Guidance may be provided on both a GAAP (Generally Accepted Accounting Principles) basis and a non-GAAP or adjusted basis.
- Profitability Metrics: This can include gross profit margin, operating profit margin, and net profit margin, indicating the company’s expected profitability levels.
- Specific Business Metrics: Depending on the industry, guidance might include metrics like subscriber growth, units sold, or same-store sales growth.
- Other Financial Items: Companies may also provide guidance on capital expenditures, cash flow, tax rates, and other relevant financial items.
Full-year guidance is usually presented as a range (e.g., revenue between $X billion and $Y billion, or EPS between $A and $B) to account for potential variability and uncertainties throughout the year.
UnitedHealth (UNH) stock cratered just over 22% Thursday — its biggest single-day drop since August 1998 — after its first quarter earnings missed expectations and the company cut its full-year profit guidance. The health insurance giant now expects adjusted full-year profits to fall in a range between $26 and $26.50 per share, down from its prior forecast for adjusted EPS to come in between $29.50 and $30.
Netflix (NFLX) stock climbed in after-hours trading on Thursday after the company delivered first quarter earnings that beat expectations on both the top and bottom lines and also reiterated full-year revenue guidance. Netflix reported revenue of $10.54 billion in the first quarter, a 13% year-over-year jump and a beat compared to Bloomberg analyst expectations of $10.50 billion. The company had guided to $10.42 billion.
Reasons behind Adjusting Full-Year Guidance by Companies Listed on the Stock Market
Public limited companies typically adjust their full-year sales revenue and profit guidance at several key times throughout the fiscal year:
- During the release of quarterly earnings reports: This is the most common time for companies to update their guidance. After reviewing the performance of the most recent quarter and considering any changes in market conditions or internal expectations, they may revise their outlook for the full year. This often happens in conjunction with an earnings call where analysts can ask questions about the updated guidance.
- When significant events occur: If there are substantial developments that could materially impact the company’s expected financial performance, they may issue an unscheduled update to their guidance. These events could include:
- Major acquisitions or divestitures: Buying or selling significant parts of the business can drastically change revenue and profit projections.
- Unexpected changes in market conditions: A sudden economic downturn, shifts in consumer demand, or significant regulatory changes could necessitate a revision.
- Significant operational issues: Production problems, supply chain disruptions, or major product recalls could impact sales and profitability.
- Breakthrough product launches or failures: The success or failure of a key new product can significantly alter the forecast.
- At investor conferences or events: Companies may also provide updates or reiterate their guidance during investor presentations or conferences held between earnings releases. These updates are usually consistent with previously issued guidance but can sometimes include minor adjustments or further clarification.
Companies typically provide this full-year outlook when they release their fourth-quarter or full-year earnings for the previous fiscal year and may update it during subsequent quarterly earnings reports as the year progresses.
It’s important to note that companies are not legally obligated to update their guidance after the initial report, even if circumstances change. However, many do so to maintain transparency with investors and manage expectations. Significant revisions, especially downwards, can have a notable impact on the company’s stock price.
