Companies Owned:

Sector Earnings Summary Rev Y/Y Surprise EPS Y/Y Surprise
Consumer Discretionary 23% -9% 21% 25%
Consumer Staples 9% 0% -10% 11%
Energy 22% 1% 38% 0%
Financials 16% 2% 49% 12%
Health Care 21% 6% 6% 9%
Industrials 19% 0% 17% 4%
Information Technology 47% 4% 164% 140%
Materials 18% 12% 26% 10%
Utilities & Telecom 0% 0 0% 0%
Averages 19% 2% 34% 24%

Companies Covered: 

Sector Earnings Summary Rev Y/Y Surprise  EPS Y/Y  Surprise
Consumer Discretionary 21% -3% 16% 24%
Consumer Staples 13% -1% 9% 7%
Energy 10% -4% 5% 0%
Financials 8% -6% 25% 0%
Health Care 16% 3% 3% 5%
Industrials 15% -6% 5% -3%
Information Technology 34% -6% 72% 54%
Materials 2% 5% 10% 6%
Utilities & Telecom -1% 3% -17% 12%
Averages 13% -2% 14% 12%

With the exception of Paychex, Federal Express, Nike and Oracle, all of the companies that we own and/or cover have reported their earnings results for the quarter.  While the worldwide and domestic economies have been troubled for much of the last few years, corporate America has remained strong and is getting stronger.  Let’s look at the recent facts.

The first box above shows the average revenue and earnings growth for all of the holdings in the Broadleaf Growth Equity portfolio, categorized by sector.  The numbers look very strong, pretty much across the board.  On average, our portfolio holdings reported earnings per share gains of 34% year over year on revenue gains of 19% year over year.  The second box shows the same figures for all companies that Mike and I actively cover, including those that we own.  From this vantage point, covered companies grew earnings 14% year over year in the second quarter on 13% earnings gains.  It is also noteworthy that the names we own outperformed our entire coverage universe by a sizeable amount.

The surprise factors are simply how much revenues or earnings for the quarter exceeded analyst estimates. We generally don’t give much credence to these figures since analysts are often spoon fed the numbers by most companies, rendering them somewhat worthless except in extreme situations.  Surprises can have dramatically different effects on a company’s share price depending on the amount of analyst coverage it gets and the cyclical characteristics of the industry it is in.  In general, I would say a substantial revenue beat is more important for growth stocks than a similarly sized earnings beat, but forward guidance commentary is also key.

In any event, the data strongly suggests that the problems we have with the stock market aren’t fundamental to the health or earnings of the corporate sector, but macroeconomic issues affecting the entire globe.  It probably doesn’t take a rocket scientist to point out that this has been the case for the markets in the past few years, but it can sometimes help to stop on occasion and examine the facts.  It also explains, along with the rising popularity of exchange traded funds, why the markets have been so risk on/risk off lately.

Even though United States GDP growth may be slow for as far as the eyes can see, the data also shows that there are always companies that can substantially outperform those averages.  One hopes that over time, the stocks of these companies reflect their fundamental superiority, but at least in the shorter term, macro will remain an important force.