Why CFOs Sometimes Hit Pause: The Strategic Art of Suspending Earnings Guidance
There’s a moment in the life of a company when things just aren't going according to plan. Maybe sales have taken a nosedive, or a new CEO is brought in to shake things up. For the CFO, this is when the decision looms: Do we suspend earnings guidance? Or do we push through, risk losing investor confidence, and keep the forecasts coming? This is where the plot thickens—because deciding to suspend guidance is not just about numbers, it’s about managing expectations, trust, and sometimes, survival.
Take Starbucks, for example. Recently, they suspended their guidance after a sales slump persisted. In corporate-speak, that's a way of saying, "We’re not sure what’s happening, and we don’t want to commit to any numbers right now." Now, for a CFO, this might sound like walking a tightrope over an abyss. On the one hand, it signals to investors that things aren't exactly rosy. On the other hand, it can give the company some much-needed breathing room to regroup and, ideally, come back stronger.
Let’s take a stroll through the why and when of suspending guidance. One classic scenario is when a new CEO is brought in, especially from the outside, to “clean things up.” Imagine walking into a messy house with guests expecting a five-star dinner. You need time to organize the chaos, and suspending guidance is like telling the guests, “Hey, give us a couple of quarters before we show you what’s cooking.” Investors, who are often quite reasonable (despite the stereotype of stock market sharks), usually understand this. A fresh CEO with a solid track record gets a hall pass to recalibrate expectations.
Then there’s the other big reason: a business model pivot. Let’s take the case of BlackBerry. Remember them? They went from being the king of mobile devices to shifting gears into cybersecurity and software solutions. During such seismic shifts, it’s unrealistic to predict earnings with the same level of precision. The landscape is new, the products are evolving, and the revenue streams are a wild guess at best. In these cases, suspending guidance is almost a necessity to avoid over-promising and under-delivering—a cardinal sin in investor relations.
But it’s not all sunshine and rainbows. When a CFO decides to pull back on guidance, there’s a definite downside. For one, Wall Street hates uncertainty. If you stop guiding, some analysts will speculate that things are worse than they are, which can lead to a stock price drop. It's the corporate equivalent of telling someone “We need to talk,” and then walking out of the room—people will naturally assume the worst. It’s also worth noting that if you suspend guidance too frequently or without a clear reason, it erodes trust. Investors might start to feel like they’re flying blind, and that’s when confidence plummets.
So, when should a CFO actually consider this move? Timing, as in all great stories, is key. If the company is facing an unpredictable external crisis—say, a supply chain breakdown or regulatory upheaval—suspending guidance might be the most transparent move. It shows that leadership is taking a measured, cautious approach rather than pulling numbers out of thin air. Similarly, if the company is in the midst of an acquisition or merger, where outcomes are hazy at best, it might make sense to pause on earnings predictions until the dust settles.
In essence, the decision to suspend earnings guidance is about buying time and space—time to get the house in order and space to maneuver without the constant scrutiny of quarterly numbers. It’s a tactical retreat, not a defeat. But like all tactical retreats, it only works if you come back with a solid plan.