Companies clamming up on profit forecasts

In the past three years, the number of earnings forecasts by public companies has fallen steadily, according to Thomson Financial.

This could lead to more earnings surprises — figures that far surpass or lag analysts' estimates — causing stock prices to gyrate.

It also means investors may want to look more closely at analysts' reports, preferably several, to gauge a company's prospects.

The drop in forecasts comes after a 2002 federal law, Sarbanes-Oxley, which made companies cautious about issuing information outside of quarterly reports.

Companies say eliminating forecasts frees them from the pressure to "make their numbers" each quarter.

When a company misses its target, the shares get hammered: such a shortfall caused MGM Mirage to fall 4.5 percent Thursday.

Companies that forgo forecasts say it allows them to focus on long-term growth. One such company is Google.

"A management team distracted by a series of short-term targets is as pointless as a dieter stepping on a scale every half-hour," wrote founders Larry Page and Sergey Brin when the search-engine provider went public in 2004.

Other companies defend so-called earnings guidance. One Fortune 500 chief financial officer, who declined to be identified, says guidance ensures analysts have accurate information.

"And it certainly helps us manage the movement of our stock, which keeps volatility down," he adds.

The loss of guidance worries analysts, who say privately the lack of official company forecasts can lead their estimates astray.