Navigating earnings guidance amidst macroeconomic uncertainty
Recent global developments, including escalating trade tensions and widespread economic uncertainty, have significantly impacted financial markets, increasing the risk of a global recession and prompting shifts in international trade patterns.
These evolving conditions have compelled many companies to reassess their financial outlooks and operational strategies. Rising raw material costs, supply chain disruptions, and changing demand patterns are leading businesses across various sectors to consider whether to revise their earnings guidance. Industries such as manufacturing, retail, and technology have been particularly affected, with numerous companies indicating potential margin compression and lower revenue projections during earnings calls and investor updates.
Implications under Danish securities laws
Under the Market Abuse Regulation (MAR), European listed companies are obligated to disclose inside information. In Denmark, it is customary for listed companies to provide guidance for the current financial year and often outline longer-term targets.
When a company's outlook or long-term targets are materially affected with a sufficient degree of certainty, issuers must consider whether they are required to issue revised guidance or adjust their long-term targets. Several US companies have already suspended their guidance in response to the current economic climate and the first Danish companies have already revised as a result of the ongoing uncertainty.
Precedents and regulatory expectations
From a Danish perspective, the ability to suspend guidance has precedent. During the COVID-19 crisis in spring 2020, many issuers faced challenges in estimating the pandemic's impact on their guidance. In March 2020, the Danish Financial Supervisory Authority (DFSA) issued a press release confirming the legality of suspending guidance under extraordinary circumstances. However, the DFSA emphasized that such suspensions should be disclosed promptly and highlighted the interim nature of these announcements, noting the potential need for multiple updates.
In a subsequent press release in August 2020, the DFSA expressed the expectation that issuers would, five months later, generally have sufficient grounds to reissue guidance or, at a minimum, provide reasons for their inability to do so.
Current considerations
Whether the ongoing economic situation will lead the DFSA to permit suspensions remains uncertain. However, it's important to note that during the COVID-19 crisis, the DFSA adopted a cautious approach to suspensions. Issuers are advised to monitor the situation closely and ensure compliance with regulatory expectations regarding the disclosure of inside information.