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U.S. Corporations Becoming Too Relaxed in Their Forecasting

U.S. Corporations Becoming Too Relaxed in Their Forecasting

by Rick Turoczy on June 6, 2006

The disconnect between analyst expectations and corporate earnings performance was especially striking in the high tech, materials and energy, industrial and financial sectors in 2005. High tech had the largest percentage of companies exceeding market EPS estimates with the materials and energy sectors a close second. At the other end of the spectrum, the industrial and financial sectors had the largest percentage of companies that underperformed compared to market EPS estimates.

Since the passage of the federal Sarbanes-Oxley Act on financial disclosure in 2002, the timeframe in which companies must report their quarterly and annual earnings to the SEC has been reduced significantly. This need to report more quickly to the SEC — while maintaining the necessary level of transparency and accuracy — has put a tremendous amount of pressure on companies.

“Misses — be they positive or negative — impact the integrity of financial reporting,” continued Neeley. “It is possible for Wall Street to report more ‘hits’ and fewer ‘misses’ during earnings season with a more deliberate approach to data gathering and reporting. And a streamlined reporting system can help significantly.”

U.S. Corporations Becoming Too Relaxed in Their Forecasting

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