End of an Historic Earnings Season

Michael Rudd, CFA | President, CEO and Portfolio Manager

Earlier this month, we provided a mid-quarter earnings season update. As earning season came to an official close for the Pathfinder investment team with the Canadian Banks reporting this week, we provide that update again. It has been a difficult session with alarming results in certain sectors. We wrote in the title above that this past quarter was “Historic”. Given the fact that the period only captured the first month of the mitigation strategies, next quarter is sure to be worse. For example, we listened to a number of management calls for retail real estate companies across North America and heard that, as a generalization, they are collecting only 15% of their revenue. This has yet to flow through most company financial reports.

  • Figure 1 presents aggregate revenue data for companies in North America. As you can see, there is broad based difficulty with only defensive sectors and technology having revenue growth. In a “normal” period, sales growth tends to be 3-5% per qtr, so this data is not good. Earnings data is even worse at -12% for all companies.
  • Figure 2 presents current pending housing sales in the US, which are at historic lows. This makes sense given the limited the traffic that would result from mitigation. We have, however, heard anecdotal reports from companies that we follow that home improvement spending has increased dramatically in place of discretionary spending.
  • Employment continues to be difficult with another 2 million jobs lost this week. There are also another 1.7 million “gig economy” workers that have not applied for benefits because of an existing subsidy program. Next Friday, the monthly US Employment Report will come out and we will get a more comprehensive update.

“This means that” we see a significant difference between the current economy (company earnings, housing & employment) and the stock market (i.e. the quoted value of the S&P 500 Index). This could be explained by expectations for future economic improvement, the significant devaluation of money by governments globally and the realization that certain companies actually financially benefit from structural changes brought on by the pandemic. We will highlight some of these in coming weeks.

Pathfinder Asset Management Ltd. | Equally Invested™
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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.

*All returns are time weighted and net of investment management fees. Returns from the Pathfinder Partners’ Fund and Pathfinder Real Fund are presented based on the masters series of each fund. The Pathfinder North American Equity Portfolio and The Pathfinder North American 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 North American Equity Portfolio (January 2011), Pathfinder North American High-Income Portfolio (October 2012) Pathfinder Partners’ Fund (April 2011), Pathfinder Real Fund (April, 2013), and Pathfinder International Fund (November 2014).

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