Q1 Earnings Season Complete

Michael Rudd, CFA | President, CEO and Portfolio Manager

As regular readers of the Investment Outlook know, our writing follows the calendar of quarterly earnings reports. The companies that we invest in report financial data and management commentary on a regular basis, which is colloquially called “earnings season”. This is an important part of our investment process because we are able to check in on the progress of the companies that we own, as well as management’s expectations for the future of their business operations. Internally, we informally declare the “end-of-earnings season” when the results of the Canadian banks are published. The quarter “ended” this week with bank earnings. Readers will also recognize the aggregate sales data for North American companies noted in Figure 1. We have mentioned before that we prefer to review aggregate sales data as it is harder to manipulate than earnings. For a large group of companies, we feel this is a better way to take the temperature of how the North American economy is performing. We also focus on “all listed companies” in North America, rather than a widely used index, like the S&P 5oo for example, because we find the large global companies in those types of indices can skew a significant portion of what would be “main street”. This could cause us to draw incorrect conclusions from the data.

  • So far, 95% of companies have reported their results this quarter and aggregate sales have grown 15.8% from last year. This is a still an impressive number but a little lower than what we observed during the middle of this earnings season. At that point, the data was light on Consumer Discretionary companies. With those added, the growth rate has moderated somewhat.
  • However, all sectors are positive once again and the majority have posted double digit growth This is something that we have noted in the data for the past three quarters now and it remains impressive, as we have not seen such broad sustained growth before.

“This means that” the economy continues to post topline sales grow when compared to last year, which is good. We do need to keep in mind that we are still in a recovery period, so we are coming off from a lower base. Also, there is an inflationary component to the numbers, given that prices in general have risen. However, a quick comparison of actual results vs. analyst sales expectations for the quarter still indicates that sales were stronger than what most investors would have expected.


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Sources: Pathfinder Asset Management Limited

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