Yahoo Finance's Myles Udland discusses corporate earnings and the process that goes into forecasting these results.

Video Transcript

JULIIE HYMAN: In the Morning Brief today, Myles, you wrote about the reasons why companies are not giving forecasts, right? We earlier in the week talked about why there's this sort of lack of visibility. Today is a pretty darn good example why there's not a lot of upside in giving forecasts, right? When you get a miss like this in the economic data, it shows you perhaps the level of-- on a smaller level, but still the unpredictability that companies are working with. And as you write, companies are getting punished when they do come out with guidance if it's not what the Street was looking for.

MYLES UDLAND: Yeah, and you know, [INAUDIBLE] who's an analyst who's been doing this a long time, I think gives a really digestible example here of S&P earnings this year are expected to rise 14%. So the question-- and then the industries have their own benchmarks within that. But the basic question that a CFO needs to answer for a quarter is, why are your earnings going to grow faster, slower, or in line with your industry and the market as a whole? The analyst just wants to know, do I pencil you in as a faster grower, as a slower grower, or an in-line grower? That's a basic part of their model.

The CFO doesn't want to say that right now because they could have a month that from a sales perspective, looks like the economic equivalent of the April jobs report, for example. They could also have the exact opposite. They could have a month where sales are up 40% in a business that's seeing organic growth growing 5%, let's say. That's going to throw off what their numbers end up looking like.

So, the dance between CFOs, the finance team at any business, and analysts is always, analysts wants to know what their model should say for projections. And the executives want to say, as measured-- or they want to say something that is as measured as possible about where they think the business is going. And the balance of risks thus says, don't say anything.

But a couple of companies that we cited in the brief today, Etsy and Netflix among them, they did say something about where they thought their business was headed or dynamics that could be impacting their business later this year. And those stocks were severely punished just for saying those things. I mean, Etsy is still talking about growing at a fast rate, but in a decelerating environment, boom, stock goes down. What was it down? I think 12% or 14% during yesterday's trading session. And it clearly shows that you are incentivized to say nothing if you don't have to.

And so, we write this story. I think we've written it, like, three different times now. Earnings keep beating expectations. Well, that story is probably also going to be written in the second quarter. And I'm really going to write that again after the third quarter because the same thing is going to happen. Companies don't say anything. The Street guesses. They guess low. And everyone goes home happy. Company X beat their number.

Our viewers see it every day. Every earnings we go through, it feels like, they beat on the top and bottom line. They beat on the top and bottom line, well, that's a managed outcome. But in a volatile environment like this, it's really the only option I think that finance teams-- the finance department has when thinking about what can we say, what should we say to the Street. The real option is sort of, don't say anything.