Tuesday, 19 June, 2018

Buffett, Dimon say quarterly profit forecasts harming economy

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Johnnie Parks | 10 June, 2018, 07:13

Warren Buffett and Jamie Dimon are doubling down on their plea for corporations to stop providing quarterly earnings guidance.

Dimon, who leads the Business Roundtable, an association of chief executive officers of leading U.S. companies said the move is supported by the group, added the report.

Neither Buffett, chairman and CEO of Berkshire Hathaway Inc.in Omaha, or Dimon, chairman and CEO of JPMorgan Chase, predict their profits every three months.

Dimon, is chairman of the Business Roundtable, an association of almost 200 CEOs that is also backing the push to eliminate so-called short-termism.

Dimon said CEOs can influence their quarterly results by not opening branch offices, cutting research and development spending, reducing their marketing and other decisions that could hurt future earnings.

It's "sending the wrong message", Buffett told CNBC's Becky Quick in the interview.

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(FILES) This file photo taken on September 12, 2016 shows Jamie Dimon, chairman and CEO of JPMorgan Chase at the Economic Club of Washington, DC in Washington, DC.

"It can put a company in a position where management from the CEO down feels obligated to deliver earnings, and therefore may do things that they wouldn't otherwise have done", Dimon said.

Dimon said Thursday that about 20 percent of Business Roundtable members still do quarterly guidance and about 60 percent provide annual targets. JPMorgan Chase reported lower fourth-quarter earnings January 12, 2018 on weak trading revenues and one-time costs from USA tax reform, partly offset by gains from higher interest rates.Net income for the quarter ending December 31 was $4.2 billion, down 37 percent from the year-ago period.

But McKinsey & Co. found in a 2006 study that quarterly guidance didn't affect valuation multiples and didn't reduce share price volatility.

Dimon and Buffett noted that the pressure to meet short-term profit forecasts has contributed to a fall in the number of public companies in the U.S.in the past two decades, "depriving the economy of innovation and opportunity".

More than 100 million Americans invest in public companies directly or through mutual funds and millions more participate in corporate, public and union pension plans.

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