End of Year Earnings Season

Michael Rudd, CFA | President, CEO & 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. This is colloquially called “earnings season”. It 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. As a generalization, the Canadian banks had a little more difficulty with general bank operations. This was balanced against strong trading and investment activities. It will be interesting to see how these businesses evolve in the current environment. Regular readers will 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, 2,512 companies or 81% of North American companies have reported results and they have come in mixed for the period. In the last few quarters, all sectors have had positive sales growth, which was somewhat abnormal. The current distribution looks more typical and we have some general observations.
  • Materials and Financials had negative growth for the quarter. Energy remains strong with commodity prices high and reinvestment rates low. While it does not show it in the data, if we look back at the full year, every sector was positive and most had double digit growth (other than Financials), demonstrating the full extent of the rebound. This has been a recession and recovery like no other and the data shows that.

“This means that” we believe that the outlook for the global economy remains somewhat better than what we originally thought throughout last year. Managers of international companies appear to have a more constructive view than those of North America managers and with the job market so strong here, we will continue to watch inflation data very closely.

Pathfinder Asset Management Ltd. | Equally Invested™
1450-1066 W. Hastings Street, Vancouver, BC V6E 3X1
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Sources: Pathfinder Asset Management Limited

National Instrument 31-103 requires registered firms to disclose information that a reasonable investor would expect to know, including any material conflicts with the firm or its representatives. Doug Johnson and/or Pathfinder Asset Management Limited are an insider of companies periodically mentioned in this report. Please visit www.paml.ca for full disclosures.

Changes in Leverage. We are increasing the asset ceiling to 2.0 times the market value of equity for Pathfinder International Fund and Pathfinder Real Fund to be consistent with Pathfinder Partners’ Fund and Pathfinder Resource Fund.

*All returns are time weighted and net of investment management fees. Returns from the Pathfinder Partners’ Fund and Partners’ Real Return Plus Fund are presented based on the masters series of each fund. The Pathfinder Core: Equity Portfolio and The Pathfinder Core: High Income Portfolio are live accounts. These are actual accounts owned by the Pathfinder Chairman (Equity) and client (High Income) which contain no legacy positions, cash flows or other Pathfinder investment mandates or products. Monthly inception dates for each fund and portfolio are as follows: Pathfinder Core: Equity Portfolio (January 2011), Pathfinder Core: High Income Portfolio (October 2012) Partners’ Fund (April 2011), Partners’ Real Return Plus Fund (April, 2013), and Partners’ Core Plus Fund (November 2014).

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