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What does guidance in Mexican Capital Goods and Energy looks like? And what should it look like?

This week we continue our analysis into guidance trends for the different industries in Mexico. As we said in the first installment of this guidance series, the best guidance strategy changes by industry, since the most relevant metrics investors and analysts should base their model projections on vary. Today we are showing guidance strategies for two industries: Capital Goods and Energy.

It is important to note that as usual we only consider guidance to be formal guidance if it is properly disclosed, numeric (even if it is a range), and not only broad management comments on a very high-level view of the direction the business is taking. As for the sector classification of companies, we are following the definitions from the BMV (Bolsa Mexicana de Valores).

 

Mexican Capital Goods Companies (Conglomerates, Chemicals, among others) – Current formal guidance strategy

Source: Company materials
*Notes:
– Rotoplas gave an update of its guidance in 2Q21, lowering EBITDA margin (absolute EBITDA remained unchanged) and raising Revenue expectations.
– Orbia suspended its guidance due to the pandemic in 2020 and relaunched it again in 1Q21.
 
Mexican Energy Companies – Current formal guidance strategy
Source: Company materials

 

  • As can be seen on the tables above, currently only 3 out of the 8 capital goods companies provide formal guidance and 2 out of the 3 energy companies do.
  • For those companies that do provide guidance, capital goods companies guide 3 metrics on average, while energy companies guide 4 metrics on average.
  • All the capital goods companies that do provide guidance include it in the earnings calls (plus earnings presentations or earnings reports), and two of them in addition publish a press release to announce the guidance separately when launched.
  • The two energy companies that do provide guidance include it in their earnings presentation and calls.
  • The guidance strategies for Capital Goods companies are mostly based on ranges rather than point estimates.
  • The guidance strategies in the energy sector are mostly point estimate based.
  • Two out of the three capital goods companies provide guidance annually, the other does so quarterly.
  • One energy company published guidance annually, the other provides quarterly updates.
 

So, what do the largest capital goods companies (by market cap) in the world do?

  • Danaher Corp provides quarterly guidance on its GAAP and Non-GAAP core revenue growth, using point estimates through their press releases and earnings calls.
  • Thermo Fisher Scientific provides guidance on three metrics: revenue, revenue growth, and adjusted EPS. They do so on a quarterly basis and present their estimates in ranges in their press releases, and earnings results and calls.
  • Boeing last provided guidance at the end of 2018 when they started having issues with their 737MAX airplanes but used to do so on a quarterly basis.

 

What should we learn from this?
As with financial companies, large global companies seem more cautious as to how many metrics they guide on than Mexican peers. This sector is quite heterogeneous but based on the two companies that do provide guidance out of the largest 3, it seems that the strategy is similar to that of Mexican companies: some guidance on the top line, some on profitability metrics (bottom line in the case of Thermo Fisher Scientific, EBITDA or ROIC in the case of the Mexican companies).

 

And what about the largest energy companies (by market cap) in the world?

  • ExxonMobil provides quarterly point-estimate guidance on corporate and financing expenses in its earnings’ presentations. They also provide a broader outlook with general comments on various metrics for its business units: CapEx, Upstream volumes, Downstream refining margins, and Chemical’s margins, as well as Corporate’s asset sales, energy and maintenance costs, turnarounds, debt/capital ratio, and emission reductions.
  • Royal Dutch Shell also provides quarterly guidance on many metrics per business segment: Integrated Gas (Production, LNG liquefaction, trading and optimization, underlying OpEx, pre-tax depreciation, taxation charge, CFFO, tax paid), Upstream (Adj. EBITDA, underlying OpEx, pre-tax depreciation, pre-tax exploration, taxation charge, tax paid), Oil products (Adj. EBITDA, pre-tax depreciation, taxation charge, tax paid, working capital), Chemicals (Adj. EBITDA, pre-tax depreciation, tax charge, CFFO), and Corporate (adjusted earnings). All are provided in ranges, except for refining indicative margin. These are published on their webpage as “quarterly update notes”.
  • Chevron provides quarterly guidance in a mix of ranges and point estimates on the following metrics: turnarounds, curtailments, refinery turnarounds, share repurchase, pension contributions, C&E expenditures, TCO co-lending payments, distributions, asset sales proceeds, ROCE, excess cash, CAGR, CapEx, and emissions. These are provided through their corporate presentation, as well their earnings’ presentations and calls, also segmented into business areas (Upstream, Downstream, and Others).
 

What should we learn from this?
Interestingly, the big energy companies seem to provide much more exhaustive guidance than Mexican companies do (and that most sectors). This guidance is frequently updated (quarterly) and both ranges and point estimates are used. This may stem from more investor pressure or a higher difficulty in modeling this sector relative to others. It is possible for Mexican companies to become bigger and more visible on the global arena they would need to follow a path closer to what the larger peers do, as investors who are getting so much information from other companies will have a higher bar for newcomers.

As we have said in the past, we reiterate our view that companies that have not done so yet, should relaunch a guidance strategy (or launch one if they haven’t had it in the past). It will make the team’s life easier when talking to investors and analysts as it will prevent facing reputational and regulatory risks related to unpublished price sensitive information.

If you need any help defining your guidance strategy, please let us know. We at Miranda IR will be more than happy to help.

Contacts at Miranda Partners

Damian Fraser
Miranda Partners
damian.fraser@miranda-partners.com

Ana María Ybarra Corcuera
Miranda-IR
ana.ybarra@miranda-ir.com

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