Summertime Blues (and Yoo-hoos)

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by Ralph Cole, CFA
Executive Vice President of Research

Summertime Blues (and Yoo-hoos)

Earnings season is a whirlwind period of companies reporting their most recent quarterly results. We believe that this tends to be a better indicator of what is going on in the than most aggregate economic statistics. Large U.S. corporations touch virtually every corner of the world, and then report back to Wall Street every three months. This real time data has proven to be more reliable than government economic statistics. What do we mean by that?

Let’s take first quarter GDP, for example. When the Bureau of Economic Analysis first reported U.S. GDP growth for the first quarter it was +.2 percent. While not robust, it was at least positive. The next month they updated their estimate, and decided that the U.S. economy actually contracted .7 percent in the first quarter of the year. Then, last month the BEA updated their numbers again and came back with -.2 percent. U.S. GDP is destined to be revised for years to come. As investors we have to rely on what the companies are telling us in order to anticipate the direction of the global economy.

Thus far, what we have learned from second quarter earnings reporting is that the consumer is in good shape, but they are discerning amongst brands and retailers. The oil and gas slowdown is for real and it is hurting not only energy companies, but industrial companies that sell into that market as well. Banks, technology and healthcare have all seen relatively healthy growth here in the U.S.

Globally companies are citing re-acceleration in Europe despite the headlines in Greece. Weakness is evident in commodity-dependent countries such as Canada, Australia, Brazil and Russia. The materials sector has fallen on weak prices, which is especially troublesome for companies with heavy debt loads.

A number of companies and industries have executed very well in this challenging environment. For example, Amazon is starting to show some profitability along with continued growth. Regional banks are reporting strong loan growth and record low default rates. Biotechnology remains a source of strength for the market with both Gilead and Amgen beating estimates. However, earnings season remains challenging because stocks that miss estimates are punished severely.

Our Takeaways for the Week

  • U.S. economic statistics are important, but have to be understood in context of other data because they are often revised multiple times and for several years
  • In general, companies are managing well through a mixed macroeconomic environment

Disclosures

Ferguson Wellman Ranked a “Top RIA” by Financial Advisor

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Ferguson Wellman Capital Management has been named by Financial Advisor magazine as a top investment company.

Financial Advisor named Ferguson Wellman 44th out of 203 U.S. firms in the $1 billion-and-over asset category of their RIA rankings. Ferguson Wellman is the highest-ranked firm headquartered in Portland, Oregon. The listing is created by tracking distcretionary and nondiscretionary assets under management according to each firm’s ADV.

“We are fortunate that our firm has consistently experienced growth, not only in clients and assets under management but also employees and breadth of investment offerings and services,” said Mark Kralj, principal. “We attribute much of our growth to the confidence and trust clients have in us as well as the professionals in accounting, estate planning and private banking who we work with on behalf of our shared clients.”

Founded in 1975, Ferguson Wellman Capital Management is a privately owned investment advisory firm, serving clients with investable assets starting at $3 million. As of 2015, the firm works with more than 700 clients and manages over $4 billion that comprises separately managed accounts for individuals and families; foundations and endowments; and corporate and Taft-Hartley plans. West Bearing Investments, a division of Ferguson Wellman, serves individuals and institutions with assets starting at $750,000. All company information listed above reflects 6/30/15 data.

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Earnings In Focus

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Shawn-00397_cmykby Shawn Narancich, CFA
Executive Vice President of Research

More Than Meets the Eye

While US stocks have remained in a trading range through the first third of earnings season, what lingers beneath the surface belies a market near recent highs. Set against a quiet week on the economic news front and at a time when the Greek melodrama is again fading from the headlines, investors put their full attention into discerning the health of corporate America. As measured by the market capitalization of reporting companies, this past week marked the most significant period of the second quarter earnings season. Though a plurality of those delivering numbers are beating bottom line estimates, revenues are coming in much more mixed given continued headwinds from the stronger dollar and weakening growth in China. Indeed, the Red Giant confirmed the latter earlier today by reporting surprisingly week manufacturing numbers that furthered the sell-off in commodities, rallied the dollar, and boosted bonds.

Not Sleepless in Seattle

In an earnings report that bore some resemblance to Google’s expense-driven earnings beat last week, internet commerce mainstay Amazon.com proved that even it can make money when it stops spending so much. Revenue growth has never been the problem for the folks headquartered in the Emerald City and, on that measure, Amazon continues to excel, reporting accelerating revenue growth that beat estimates.  What was somewhat surprising is that Jeff Bezos’s gang allowed some of the top-line largess to the bottom-line, reporting perhaps the most celebrated $92 million profit ever.  Once again, shorts betting against Amazon got hammered, as the stock surged 10 percent on the news in an otherwise down market. Although a resulting net profit margin of 0.4 percent is certainly not what most companies aspire to, it helped create $22 billion of wealth for Amazon’s shareholders today. For our part, we continue to avoid companies trading for 372x estimated earnings.

Not to be outdone by its Seattle neighbor, consumer darling Starbucks also delivered an upside earnings surprise, reporting that its new mobile ordering initiatives are helping drive traffic and boost same-store sales, which surged 7 percent. On the back of healthy top line growth that translated into a 24 percent earnings gain, Starbucks investors were greeted with further gains in the stock.

An Apple Bitten

In contrast to the wealth created by Seattle-based firms this week, Apple ceded some of its prodigious market value on reduced revenue guidance tied to moderating iPhone sales. While 33 percent quarterly sales growth for a company of Apple’s size is nothing short of extraordinary, when you get to be a company with annual sales approaching $230 billion, it’s only natural for investors to question what a company like this can do for an encore. For our part, we continue to view favorably the prospects of this reasonably valued technology titan.

Our Takeaways from the Week

  • A heavy week of corporate earnings produced mixed results for investors
  • Concerns about a slowing China continue to weigh on commodity prices

Disclosures

Ferguson Wellman Ranked Second on Portland Business Journal Money Management Firms List

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Ferguson Wellman Capital Management is pleased to announce that the firm has been named by Portland Business Journal as a top money management firm in their 2015 Wealth Management and Financial Services Guide publication.

Portland Business Journal ranked Ferguson Wellman second in Oregon and Southwest Washington on their list of 25 money management companies. The listing was created by calculating the total number of assets under management for Oregon and Clark County, Washington clients as of the second quarter of 2015.

“We are delighted to be honored by the Business Journal. However, what is of utmost importance to us is the trust our clients place in our firm. That means more than any award or ranking ever could,” said Jim Rudd, chief executive officer.

Ferguson Wellman Capital Management builds and manages customized investment portfolios of $3 million or more for individuals, families, foundations, endowments and corporate retirement plans. With a majority of the investment portfolios comprising individual securities, Ferguson Wellman’s team of in-house analysts make decisions regarding asset allocation, sector weights and security selection directly for our clients.

Founded in 1975, Ferguson Wellman is a privately owned registered investment advisor headquartered in the Pacific Northwest. With more than 640 clients in 36 states, the firm manages $4.2 billion. Ferguson Wellman also serves individuals and institutions through West Bearing Investments, a division that manages portfolios with investments of $750,000 or more. (data as of 6/30/15)

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