Golub’s portfolio index shows slowing growth in Q2

Data from a sampling of mid-market companies in Golub’s loan portfolio reflects second quarter declines in both earnings and revenue growth.

Growth in the US middle market has slowed during the second quarter according to the Golub Capital Middle Market report released Thursday (7 July). Both revenue and earnings growth have slowed during the second quarter according to information gathered from more than 150 companies in Golub's Altman Index. The index was launched last year in collaboration between the mid-market lender and Dr. Edward Altman, a New York University finance professor emeritus.

The index is based on monthly sales and earnings data provided to Golub by companies in its loan portfolio and is designed to give early insight into mid-market conditions ahead of the earnings season.

These companies' revenues, while still growing, posted 7.38 percent revenue growth in the first two months of Q2, compared to 9.08 percent in the first two months of Q1. Both numbers represent year-on-year growth. Over the same period, earnings growth for companies in the index fell from 5.05 percent to 2.01 percent.

Although the index itself has limited exposure to energy, oil prices still played a key role in the report's findings.

“The contraction of energy prices is not long-term or sustainable, and we said that tailwinds from energy cost reductions would diminish. We are beginning to see that in sector reversals,” Altman said in a statement. “With average oil prices rising as much as 40 percent in Q2, consumers are being hit, and consumer staples and consumer discretionary growth decreased to the lowest levels since our analysis began,” he added.

Profit growth was robust in the information technology and industrials (ex-energy) sectors during the second quarter, according to the report. The information technology sector saw revenue growth of 15 percent and earnings growth of 16.16 percent in April and May, fueled by continued investments in cloud-based services. For industrials, the report credited the effects of a weak dollar for supporting revenue growth of about 4 percent and earnings growth of about 12 percent.

The data used in the index began to be tracked in 2012 and the quarterly report was launched in the second quarter last year.

“We saw a void in actual hard information about US middle market companies. There is lots of perception data but not actual financial information,” said Golub chief executive Lawrence Golub in a video introduction to the report.

Altman is the Max L. Heine professor emeritus of finance at the NYU Stern School of Business and director of research in credit and debt markets at the NYU Salomon Center for the Study of Financial Institutions. He has published 150 articles in scholarly finance, accounting and economics journals and is a member of both the Fixed Income Analysts Society and Turnaround Management Association Halls of Fame.

Golub Capital is a credit firm with $18 billion of capital under management through its mid-market lending, late stage lending and broadly syndicated loans businesses. The firm was founded in 1994 and maintains offices in Chicago, New York, San Francisco and Charlotte, North Carolina.