Gavekal Capital: US Corporate Profit Margins Are Coming Back Down To Earth

Friday, May 29, 2015

US Corporate Profit Margins Are Coming Back Down To Earth

Today wasn't the best day for US economic releases. The 2nd revision of 1Q GDP was (unsurprisingly) revised down from 0.2% to -0.7%. The release that caught our eye, however, was the initial release of corporate profits in the US for the first quarter. After-tax corporate profits did rise by 2.7% year-over-year in the first quarter but this was on the heels of the 2014 4Q revision that reduced the growth rate of corporate profits from +2.9% to -2.5% during that quarter. Corporate profit margins have now dropped below 8% for the first time since 2009. Margins, as measured by after-tax profits divided by nominal GDP, hit an all-time record of 10.06% in 4Q2011. Margins have since steadily fallen to the its current level of 7.97%.

About Gavekal Capital

Gavekal Capital is a US registered investment advisory firm that manages the Gavekal Knowledge Leaders Strategy. Knowledge Leaders are a group of the world’s leading innovators with deep reservoirs of intangible capital. These companies often possess competitive advantages such as strong brand, proprietary knowledge or a unique distribution mechanism. Knowledge Leaders are largely service-based and advanced manufacturing businesses, often operating globally. Gavekal Capital seeks to identify the world’s leading knowledge companies through a proprietary process that analyzes corporate knowledge investments.
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