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Tech, Industrials Push U.S. Middle Market Earnings Up Nearly 13% in Second Quarter

July 16, 2018, 07:05 AM
Filed Under: Economy

The Golub Capital Altman Index experienced year-over-year earnings growth of 12.59% and revenue growth of 11.15% during the first two months of the second quarter of 2018. This is an increase from the first quarter 2018 year-over-year earnings growth of 6.22% and revenue growth of 10.96%.

Lawrence E. Golub, CEO of Golub Capital, said, "The last three quarters in a row have set three records in a row for the highest revenue growth since inception of the Golub Capital Altman Index in 2012. Q4 2017 was the best fourth quarter, Q1 2018 was the best first quarter and now Q2 2018 was the best second quarter. In the second quarter of 2018, all sectors showed accelerating earnings growth compared to the first quarter, even as they maintained revenue growth at or near double-digit rates. This suggests middle market companies' efforts to control costs are paying off in the form of better margins. Our data gave early insight into the pickup of economic growth that began last year and today's results suggest the U.S. economy is on track for second quarter GDP growth of 3.5% to 4.0%."

Dr. Edward I. Altman said, "Technology and Industrials companies led the way for earnings growth, with year-over-year EBITDA growth rates of more than 20%. Although trade tensions appear to be creating challenges for some larger-cap companies in specific sectors, we are not seeing a noticeable impact in our middle market portfolio. The Healthcare sector, which has generally been a negative outlier, has now shown positive earnings growth in two of the last three quarters. We may be seeing a similar turnaround in Healthcare profitability as we saw in the Consumer sector in the second quarter of last year."

The Golub Capital Altman Index (GCAI), which is produced by Golub Capital in collaboration with renowned credit expert Dr. Edward I. Altman, is the first and only index based on actual revenue and earnings (defined as earnings before interest, taxes, depreciation and amortization, or EBITDA) for middle market companies. It measures the median revenue and earnings growth of more than 150 private U.S. companies in the loan portfolio of Golub Capital, a leading middle market lender. Reported shortly before public company quarterly earnings season, the GCAI has served as a reliable indicator of the overall growth rates in revenue and earnings of public companies in market indexes such as the S&P 500 and S&P SmallCap 600 (S&P 600), as well as quarterly Gross Domestic Product (GDP), according to statistical back-testing dating back to 2012, when data began to be tracked.

The size and diversity of the Golub Capital loan portfolio ensure that the confidentiality of all company-specific information used in the index is maintained in both the aggregate and industry segment data. The companies in the GCAI operate in a wide range of industries. Results are provided for the total universe of GCAI constituents and by industry segment.

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