Gartner analysed first half US earnings call transcripts from 110 S&P 500 firms, showing record cash flows driving growth in dividends, share repurchases and technology spending. It also found that 68 per cent of earnings transcripts mention digitalisation and more than half reference the term analytics more than twice. In Gartner's first report of its kind, the firm used linguistic analysis of non-financial data in the US earnings reports.
The main trends identified are:
- CFOs are optimistic about earnings growth through 2019, but that much of that optimism is based on US economic fundamentals;
- political uncertainty and emerging market growth are key concerns;
- many companies have maintained a strong efficiency focus since 2008, fearing another downturn;
- US tax changes are driving record cash flows and this is predominantly being returned to investors or spent in pursuit of growth;
- 2018 is already a record-breaking year for stock repurchase programs, with companies on track to authorize more than $1 trillion in buyback announcements in 2018;
- dividend yields remain close to the 2 per cent level they have maintained since 2008;
- 52 per cent of transcripts referenced the term analytics more than twice, mainly to describe price optimisation and tailoring promotions to more refined customer segments;
- tariff changes are beginning to affect input costs across a broad range of industries, and continued uncertainty about how tariff regimes will change from here is diverting executive planning time away from the pursuit of growth;
- a tight labor market and rising energy costs are clear inflationary pressures that executives are watching closely;
- the health of the wider global economy outside the US also remains a major concern.
CFOs caught between uncertainty and increased cash flows
Gartner notes a bipolarity in what CFOs are telling investors in earnings calls, with increased cash flows as well as the continued focus on efficiency. “Apart from returning record amounts of cash to investors, companies are spending heavily on growth, through advertising and marketing, digital business investments or usually a combination of both,” said Tim Raiswell, vice president at Gartner’s finance practice. “Sixty-eight per cent of earnings transcripts mentioned the digitalisation of their companies.”
“Another common digitalisation theme within technology firms is the prevalence of the terms artificial intelligence and machine learning,” added Mr. Raiswell. “It may be a sign of hype that these terms appear more than the term ‘operating margin’ in technology sector earnings transcripts, and are often used without any clear explanation of how they help the firm increase revenue or market share.”
He also commented that “Earnings appear to remain solid in 3Q18, despite tariffs increasingly featuring on calls. Companies say they are well-positioned to cope with headwinds due to their relentless focus on efficiency projects since 2008. Companies in the consumer discretionary, energy, financial, healthcare and industrial sectors all referred to restructuring or other efficiency-related initiatives in calls.”
Gartner clients can read more in the research note Financial Strategy Trends Review by Sector, 2018: What CFOs Are Talking About in Earnings Calls. Non clients can register for related white papers: CFOs: Drive Efficient Growth.
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