Tariff Storm Disrupts Rules: Corporate Performance Guidance Tradition Faces Historic Restructuring
Executives of U.S. listed companies are facing a historic reshaping of performance guidance under the uncertainty of Trump's tariff policy. Delta Air Lines' CEO has withdrawn the performance guidance, while Levi Strauss' CEO has maintained the annual profit guidance unchanged, despite facing tariffs as high as 145%. Walmart has warned that first-quarter operating profits are under pressure but has kept its annual targets unchanged. Several CEOs have stated that in the face of high uncertainty, pausing performance guidance is a more responsible choice
According to the Zhitong Finance APP, executives of U.S. listed companies may need to completely stop providing any form of performance guidance amid the uncertainty of Trump's tariff policy.
After all, when a single Truth Social post can instantly change the business environment (whether current or three and a half years from now), who can still believe these seemingly precise financial forecasts?
Delta Air Lines (DAL.US) CEO Ed Bastian took the lead this week by decisively withdrawing performance guidance. Meanwhile, Levi Strauss (LEVI.US) CEO Michelle Gass chose to take a risk by maintaining the company's full-year profit guidance—this is puzzling, as about 70% of the brand's raw materials are sourced from China, which is currently facing a 145% punitive tariff.
Just before Trump announced a 90-day tariff delay, a former CEO of a clothing company stated that the price of a single pair of jeans could soar by 50% to 100%. However, at least Gass has formed an internal "special task force" to assess the impact of the tariffs.
Walmart (WMT.US) CEO Doug McMillon and CFO John David Rainey opted for a compromise: they warned that first-quarter operating profits would be under pressure but maintained the full-year target range.
"The only time I paused guidance during my six-year tenure was during the COVID-19 pandemic," said former Hostess Brands CEO Andy Callahan.
He added, "CEOs and CFOs invest a lot of energy in building forecasting models and determining reliable result ranges through sensitivity analysis. But when faced with multiple shocks at the same time—like the current high uncertainty combined with urgent time pressure—the wise choice is to pause guidance.
The extent of the impact is difficult to estimate and may exceed management's control. Companies may at least pause guidance for the first quarter. Providing ambiguous or obviously distorted forecasts is far less responsible than rationally pausing. Those who claim 'not to include relevant impacts' while maintaining guidance are essentially deceiving themselves."
Several CEOs have revealed to the media that as the earnings season begins next week, a collective withdrawal of performance guidance is expected. This may lead to short-term pressure on stock prices, but investors will be forced to change their evaluation methods—focusing more on textbook-style fundamental indicators rather than fixating on specific profit numbers and the stock price fluctuations they cause.
It's time to say goodbye to analyst forecasts and the second-level fluctuations in stock prices after earnings releases!
The investment value of a company should depend on the health of its operating fundamentals, rather than the expected models constructed by investment banks based on various spreadsheet parameters. Assessing the health of fundamentals can be achieved by tracking absolute growth in sales, profit margins, earnings, and cash flow, as well as relative industry performance on a quarterly basis.
Given the uncertainty brought about by changing tariffs and their unknown impact on the economy and supply chains, it is wise to refrain from issuing short-term revenue and profit forecasts. This situation is similar to what CEOs experienced during the COVID-19 pandemic in 2020