GLOBALT Investments Senior Portfolio Manager Thomas Martin joins Yahoo Finance Live to discuss earnings season, what its signaling about the economy, job cuts, and the outlook for consumers.
Video Transcript
BRAD SMITH: As corporate executives air out their economic perspectives, we're taking a look at earnings and what earnings are signaling about the economy. Here to discuss this and more, we've got GLOBALT Investments senior portfolio manager Thomas Martin. Thomas, great to have you here with us this morning, and thanks for taking the time here.
If there is an overarching theme that you're able to draw a through line on for all of the earnings that have come forward early this season, is there one that kind of rings out or resounds for you?
THOMAS MARTIN: Yes. Well, thank you, guys, for having me on this morning. And to answer your question, the resounding theme is that we're still very much in the early stages of this normalization process, and this earnings season this first quarter is really showing that. We're getting a lot of mixed indications from the various companies that are reporting, even ones that are in the same industry. And so there's a lot that needs to keep on going on, and I'm afraid we're going to have to wait for another quarter or two before we really get definitive information one way or the other.
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JULIE HYMAN: We were just showing some of the mixed signals via the reports that you were talking about, right, that we had the likes of a JB Hunt, which is negative, which doesn't-- if you think of trucking as an economic bellwether, well, that's not-- in logistics, that's not necessarily a good thing. The airlines and homebuilders perhaps more on the consumer side. So is there anything-- even though it is a murky picture, are there any things that you have sort of pulled out of these earnings season as themes that you want to pay attention to?
THOMAS MARTIN: Well, we definitely want to be paying attention to the things like Procter & Gamble that you highlighted earlier and this difference between pricing-- the ability to get pricing and the ability to sell units. And you highlighted it perfectly is that when inflation is being fought by the Fed and the central banks and we all want it to come down, companies that are relying on pricing but are not getting that unit growth, that could end up being a problem going forward.
So for this quarter that Procter & Gamble reported, it looks as though it's a mild decline in units, and they're still getting pricing. But as that dynamic changes and if it becomes more negative, then these companies may be forced to continue to lay off more employees, and then that will raise the unemployment rate and make it more difficult for the consumer to remain strong.
BRAD SMITH: Do you think we're due this earnings season for another guidance reset?
THOMAS MARTIN: It doesn't appear that we are so far. You know, it's all idiosyncratic, and so some companies are resetting earnings to a fairly large degree. But it's interesting, you know, particularly, say, in the semiconductor area. Those expectations, even though there's a reset, are being taken in stride. So, you know, the market and investors are looking for that bottom, and we're really just in the beginning stages of the downside.
JULIE HYMAN: And so if that's the case, Thomas, right, and all of these signals are relatively murky-- we don't know if a recession is going to happen. We don't know how severe it's going to be. From a strategic perspective, do you just discard sort of top-down analysis and just try to pick good companies?
THOMAS MARTIN: That's a great question, and it always makes sense to pick good companies that have good fundamentals and good managements and more so in very difficult times and trying times. You really get to see those managements that are doing well at making the decisions.
And so especially in this time, it makes a lot of sense to go towards quality companies that have growth that will be less impacted in a downturn-- so less cyclical, less beta-type companies, less ones where you're making a bet that things have to go right. So quality for sure in this environment.
BRAD SMITH: Where does ESG sit within a quality evaluation, perhaps? Because this is something that we've heard about from everyone from the oil-and-gas companies that are trying to say, hey, yeah, we'll put these targets out there-- which, you know, in the meantime, they're going to try and maintain as best they can the profits that they are getting. But then even more so Larry Fink, Jamie Dimon, these large financial-institution CEOs that are saying climate risk is not just a societal risk, but it also is an investment risk as well if you are not putting that into your portfolio somehow. How are you evaluating ESG in this environment?
THOMAS MARTIN: Right. Well, in our fund, the way we look at ESG is not so much on a values-based or an activist-based or an agenda-based type of investment profile. And within the last year, certainly you've seen the kind of battleground and the kickback-- or not kickback-- the backlash really start to bring to the fore in the ESG area.
And I think it's important to note that, really, these metrics are new, and they're trying to measure risks in the portfolio at base. So once you get beyond a lot of the hype and the positioning, it is how are these companies thinking about these risks going forward? What can the impact be on their earnings and on their end markets and on their employees? And that's what we're trying to find measurements of and then incorporate in the portfolio.
And a lot of it comes down to better management, better awareness, and better quality in the companies. So at the margin, you're looking for those kinds of things as companies report these metrics.
JULIE HYMAN: Thomas, thank you. Thomas Martin, GLOBALT Investments senior portfolio manager, appreciate you spending some time with us this morning.
THOMAS MARTIN: Yeah, thanks very much. Thanks for having me on.