According to the Golub Capital Altman Index, middle-market private companies in the index experienced year-over-year earnings growth of 5% and revenue growth of 4% during the first two months of Q2/23.
“Revenue and profit growth in Q2 remained consistent with our expectation of continued muddling economic growth. Despite much talk in recent months of an economic slowdown, our data suggests that the U.S. middle market remains resilient and companies continue to adapt to the uncertain environment,” Lawrence E. Golub, CEO of Golub Capital, said. “Although the pace of revenue and earnings growth in Q2 was slower than in prior quarters, profit margins remained stable in aggregate. Muddling growth and stable profitability are welcome signs that Main Street largely shrugged off the impact of March’s bank failures.”
“While our Q2 data shows revenue and earnings growth in aggregate, there are notable differences in performance by sector. Revenue in the industrials sector declined 4% year over year at the same time as profits grew 9%. It’s uncommon to see revenue fall while margins expand. In our view, this highlights the importance of pricing power. Industrial companies that were able to pass through price increases in prior quarters are now capturing the benefit of falling input costs. By contrast, labor market tightness weighed on margins in the consumer and healthcare sectors,” Dr. Edward I. Altman, professor of finance, emeritus, at New York University, said. “The technology sector had the best of both worlds: robust demand for productivity-enhancing software solutions and high operating leverage. In short, while our aggregate data supports an outlook of continued positive growth for the middle market, the trends are somewhat inconsistent across sectors.”
The Golub Capital Altman Index, which is produced by Golub Capital in collaboration with Altman, is based on actual revenue and earnings (defined as earnings before interest, taxes, depreciation and amortization) for middle-market companies. It measures the median revenue and earnings growth of approximately 110 to 150 private U.S. companies in the loan portfolio of Golub Capital.
The companies in the Golub Capital Altman Index operate in a range of industries. Results are provided for the total universe of Golub Capital Altman Index 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.