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Guidance, or earnings guidance, occurs when the executives of a publicly traded corporation estimate projected earnings in an open conference call or Web cast before its quarterly earnings are released.
Goals for providing guidance include underplaying expectations to avoid negative surprises, serving as a counterpoint to stock analysts' consensus estimates, reducing stock price volatility when actual results are announced, and potentially shifting investor focus from short-term results to long-term perspectives.
Corporations also provide guidance to the investing community as a whole because they are prohibited by Securities and Exchange Commission (SEC) Rule FD (for Fair Disclosure) from providing important and previously nonpublic information selectively, as they did before the rule was enacted in 2000.
Those who advocate providing this type of guidance argue that the more information investors have the better. Detractors say guidance doesn't reduce volatility or achieve other goals.