Why Those Running the World's Biggest Companies Have No Idea What's Going To Happen Either

How do you model the unknowable? JL

Peter Kafka and Rani Molla report in Re/code:

This month, 200 companies have told investors that they are withdrawing their guidance — the numbers they would be hitting in the next few quarters of the year via update filings to the Securities and Exchange Commission, where companies put new information for shareholders. And you replace those projections with ... nothing. “One thing I know for certain,” Joseph Wolk, the chief financial officer of Johnson & Johnson told the Wall Street Journal, “is we’re going to be 100 percent precisely wrong.”

We know the coronavirus pandemic is bad. We know it is wreaking havoc on the world’s health and the world’s economy.

Beyond that, we don’t really know that much. Especially when it comes to the crucial questions: Just how bad will it get? And how long will it take the world to recover?

If you are a normal person, you may try to answer these questions by making something up, or pointing to something on the internet, or shrugging. But in corporate America, you do it another way. You tell Wall Street to ignore the projections you confidently made a couple months ago. And you replace those projections with ... nothing.

That’s what big companies have been doing in droves since the beginning of March. This month, nearly 200 companies have told investors that they are withdrawing their guidance — the numbers they told them they would be hitting in the next few quarters of the year — via update sections of 8K filings to the Securities and Exchange Commission, where companies put new meaningful information for shareholders.

It’s probably not a coincidence, by the way, that this chart looks an awful lot like the historical unemployment chart we saw earlier this week, after more than 3 million Americans said they had just lost their jobs:

Like everything else about the pandemic, that number is a huge shift from normal affairs and even from past economic calamities, like the 2008 banking collapse. It also probably understates the case, since it doesn’t include companies like Apple, which hasn’t yet withdrawn its projections but did tell investors last month that it wasn’t going to hit the numbers it previously projected; or the New York Times, which told investors that its ad numbers were being hurt but that it thought — for now, at least — the rest of its projections were okay. If companies put the announcement in other sections of their 8Ks or used different language, it wouldn’t be included, either.

The list of companies withdrawing their guidance does include big ones you’ve heard of, including Twitter, The Gap, iHeartMedia, and, not surprisingly, hotel companies like Hilton and Marriott as well as airlines like Delta and American.

What all these companies appear to be struggling with is any comprehension of the current state of the world. Join the club!

Here, for instance, is what executives at Viacom/CBS told investors today about the media conglomerate’s future: “Due to the evolving and uncertain nature of this situation, we are not able to estimate the full extent of the negative impact on ViacomCBS’ operating results, cash flows and financial position — including advertising and filmed entertainment revenues — particularly over the near to medium term.”

If you, a normal person, were so inclined, you could use this opportunity to talk about the oddities of companies confidently making projections about their businesses under any circumstances, and then coming up with to-the-penny predictions about their earnings, which they then get rewarded for beating and punished for missing.

But for now, let’s leave it here: We are in uncharted waters, and no one knows where we are going. Including some of the biggest companies and investors in the world. “One thing I know for certain,” Joseph Wolk, the chief financial officer of Johnson & Johnson told the Wall Street Journal, “is we’re going to be 100 percent precisely wrong.”