Many companies provide annual earnings guidance and quarterly updates to the analyst and investor communities. Guidance is also frequently updated during industry conferences and in nondeal roadshows. A failure to meet the market’s earnings expectations can negatively impact management’s credibility and, in turn, the price of the company’s common stock.

The importance of earnings guidance is heightened during an equity offering when a company is actively soliciting investors. Based on our experiences, decisions with respect to disclosing, updating or discussing earnings guidance are among the most difficult for the bankers, chief financial officers, lawyers, equity capital markets desks and investor relations departments working on the offering.

These decisions are addressed from varying “risk assessment” perspectives and often, it can be difficult to arrive at a consensus. Disclosure of earnings guidance in the context of an equity offering goes to the heart of the (sometimes contradictory) sensitivities of the marketing team and the legal team.

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