US Result season reflections.

For the first time I have spent some time listening to US results, below are my summaries.

Why am I doing this? Well mainly because I feel that the Aussie quality growth universe is quite narrow, and I am looking to expand that universe with int’l stocks. A narrow universe may also make the stocks relatively expensive, Aust growth managers have to buy the same stocks over and over, just look at Hyperion’s top 10 holdings for the last year!

Firstly the stock results I have listened to are V, TSMC, GOOGL, MSFT, TMO, CTAS, ASML, MA, DHR, AMD, POOL, TSCO, SYK, MTD, DOV, WST, GGG, ENTG, RGLD, DDOG. More to come.

I would characterise most of these stocks as quality growth and not particularly economically sensitive. Specifically, I am looking for med device or specialty industrial products with lots of IP protection.

The first conclusion is that results are quite strong, with consumer/client demand underpinning surging revenues. There were many comments about demand remaining strong and that allowed almost everyone to pass on higher input pricing through higher prices. There was also clear intent to continue to take price as costs increased. Not what the Fed wants to hear I suspect. I realise these are quite strong franchises but the ease and determination to take price is a significant point.

Three impediments to historic growth, have been the high USD, higher interest rates and higher oil. Only FX had any impact on results weighing in at about 3-4% negative. Offset by strong revenue growth. The impact translational not transactional, at this stage.

There were exceptions, as there always are, with stock specific and ad tech taking a beating, META, SNAP, SHOP, ROKU among them. (not covered)

Other areas that caught my interest was the short-term perspective taken by management and analysts compared to my Australian experience. I realise that the US operate on 3-month results but that seems to just encourage a set of short-term beats as a focus. The upshot is that there seems to be a quarter to quarter mentality, made me feel that unexpected moves will cause out sized volatility especially in the short term. To be fair most management said they had plans for a downturn, ie cost cutting, but no need to act now.

Secondly the size of the share-based comp is mind boggling. For those companies that can equalise share count through buybacks due to strong cash flow, passable-maybe, but for loss makers with falling share prices, the SBC will have a real negative impact. They used the share price is a weapon unto itself, if it doesn’t come back, could place them with some unsavoury choices.

Many companies guided specifically that growth is expected to continue to the end of the calendar year or into next year. Visibility varies across the companies but as a generalisation the outlooks are confident.

The conclusion is that demand is so strong that the companies can just pass on price and hold margins. The problem will come if demand hits a pothole, no sign of that so far, in fact far from it. The flip side is that increasing prices will mean a long battle against inflation could eventuate. Longer than some think.