Who's at fault for earnings 'misses'?

• Author: King, Alfred M.
• Position: Letter to the Editor

You quote [May issue, p. 10] Parson Consulting to the effect that many companies miss analyst earnings forecasts and that this indicates "inadequacies in their [the company's] financial management processes and systems that trigger faulty forecasting." This implies that if analysts forecast $1.00 per share for the quarter, and the company comes in at $.90, the company is doing something wrong.

Parson's assumptions as to cause and effect seem to me to be 180 degrees reversed. We don't know what the company itself forecast internally if they subsequently reported $.90. Maybe their internal forecast was for $.89-$.91, in which case they did a good job forecasting. In that situation it is the analysts who are...