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Earnings in U.S. Middle Market Grew By More Than 13% in Q3 2019, Golub Capital

October 22, 2019, 08:52 AM
Filed Under: Industry News

Middle market private companies in the Golub Capital Altman Index experienced approximate year-over-year earnings growth of 13.2% and revenue growth of 9.6% during the first two months of the third quarter of 2019. This compares to approximate year-over-year earnings growth of 12.5% and revenue growth of 10.3% in the second quarter of 2019.

Lawrence E. Golub, CEO of Golub Capital, said, “We continue to see very strong growth among U.S. businesses selling primarily to U.S. customers. The Golub Capital Altman Index for the third quarter of 2019 posted an eighth consecutive quarter of revenue growth at or near double-digit rates, and a sixth consecutive quarter of earnings growth at or near double-digit rates. Profit margins generally expanded in the third quarter despite a very tight labor market. This suggests that even though U.S. workers are earning more, companies continue to be smart about improving efficiency. We expect U.S. businesses that focus on the U.S. market to remain resilient despite a currently softening outlook for global growth.”

Dr. Edward I. Altman said, “Revenue and earnings growth remain strong in our sample of U.S. middle market companies, with margin expansion accelerating from the second quarter of 2019. Our sample of domestically focused Industrials companies posted double-digit revenue and earnings growth, in contrast with the recent spate of weak manufacturing data and the persistent uncertainty around tariffs weighing on companies that sell to the global market. The divergence between U.S. businesses focused on the domestic market and those focused on the global market appears likely to continue through the rest of 2019 and into the first half of 2020.”

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.

We believe the results (1) are representative of the general performance of middle market companies, which are a major contributor to U.S. private sector employment; (2) can be easily compared to the performance of the public companies that make up major stock indexes; (3) are relevant to the aggregate economic performance of the U.S. economy and (4) provide timely information for the investment community.

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. Given the index’s limited exposure to Financials, Utilities, Energy and Materials, comparisons are made to the S&P 500 and S&P 600 as well as to “adjusted” versions of those indexes that exclude the aforementioned sectors.

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