This week, we are coming back to our guidance trends analyses, focusing on two sectors in the Mexican market: Commercial Services & Supplies and Consumer Staples. As we have said in our previous guidance analyses, common metrics included in guidance strategies vary from sector to sector, and hence, so do best practices on this matter. The idea is that companies should share the metrics that are most relevant for investors and analysts’ forecasts and model projections.
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).
Commercial Services & Supplies – Current formal guidance strategy
Source: Company materials
What can we read from this table?
Given that the sector itself is quite small (only two players), and that both companies have stocks that are very thinly traded, it may be unsurprising that they do not offer guidance.
So, what do the largest Commercial Services & Supplies companies (by market cap) in the world do?
- Honeywell discloses its guidance on a quarterly basis through press releases and earnings calls and presentations. It gives range estimates for sales, segment growths, segment margins, EPS, operating cash flow, and free cash flow.
- Waste Management also shares updates to its guidance quarterly, focusing on EBITDA, EBITDA margins, free cash flow, and full-year revenue. These are published in ranges through press releases and earnings calls.
What should we learn from this?
Since this sector is quite heterogeneous, there clearly are very different approaches to guidance in these companies (and if we look at other large companies the same applies). However, the most common metric included in these guidance strategies is free cash flow. The channels used to disclose guidance were similar (Honeywell also uses earnings presentations), and updates are done quarterly. Both companies use range estimates.
Consumer Staples – Current formal guidance strategy
Source: Company Materials
Notes:
- Walmex published a press release last year providing a point estimate for annual CapEx, but we haven’t seen anything similar since for 2022. Before 2020, they gave range estimates on SSS (same-store sales) growth and new store contribution to sales growth on a variable basis in their earnings calls.
- Soriana announced its guidance for 2020 in 4Q19, anticipating point estimates for SSS (same store sales) growth, EBITDA margin, and debt. However, there haven’t been follow-ups since.
What can we read from this table?
Two out of the six Mexican Consumer Staples companies currently offer regular formal guidance. An additional did offer guidance at some point in the past. All these guidance strategies have been quite different both in metrics included and channels used over time.
With 33% of the sector providing guidance, this is one of the sectors with a higher level of guidance adoption in the market (and that is excluding the 2 companies who used to do it more regularly). We think this is mostly explained by the size of these companies and their stock’s liquidity.
So, what do the largest consumer staples companies (by market cap) in the world do?
- Amazon uses press releases to disclose range guidance estimates for net sales and operating income. This is done on a quarterly basis.
- Home Depot gives annual guidance on the fourth quarter of the year, offering directional and point estimates through press releases and earnings calls. Said guidance involves metrics on sales growth and comparable sales growth, operating margin, diluted EPS, net interest expense, and tax rates.
- Walmart also provides quarterly guidance on consolidated net sales, comp sales growth, consolidated operating income, effective tax rate, EPS growth, and CapEx through range and point estimates. It is published through press releases and earnings calls and presentations.
What should we learn from this?
Two out of these three larger players guide on six different metrics, while the third only on two. The most popular metrics were sales and operating income (and margins). There also seems to be a mix in the use of directional, point, and range estimates. The channels used also vary, ranging from just press releases, to earnings calls and presentations as well. Two of them provide quarterly updates, while Home Depot only provides an annual update.
As we mentioned before, it is unsurprising to see little action from the two small-cap Commercial Services & Supplies players, and that the available Consumer Staples guidance came from two of the larger peers.
Although we understand that there are still many macroeconomic uncertainties in the present, we think investors by now are expecting a return to normal in disclosure strategies. Because of this, and with the 1Q22 results coming up soon, we believe this would be a good time to either launch or relaunch guidance strategies for those companies that are still unsure about doing so.
If you feel like you need some assistance with this, don’t hesitate to give us a call. At Miranda IR we’d be 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