North American Weekly News

Week ended 11 May 2012

The release of some relatively disappointing US economic data led major North American equity market indices lower for the week. While the US unemployment rate dipped 0.1% to 8.1% in April, the growth in non-farm payrolls did not meet expectations. The 115,000 jobs added during the month reflected a notable decline from the average growth of more than 250,000 between December 2011 and February 2012. The marginally lower unemployment rate again was the result of a shrinking pool of jobseekers as more people stopped looking for work. In another sign that the US economic recovery remains sluggish, growth in the US non-manufacturing sector slowed in April, according to the Institute for Supply Management (ISM). The deceleration in activity was most pronounced in the business sector, while the ISM’s new order index rose during the month. The rise in US retail sales in April also did not meet expectations. Same-store sales were up 0.8%, down sharply from the 3.9% gain in March. The relatively lower growth rate was attributed mainly to the early Easter holiday, which hampered month-over-month comparisons as more sales were recorded in March.

Several of our portfolio holdings reported quarterly results during the week. Among our large-cap positions, payment-processing services provider Visa benefited from an increase in credit card transaction volumes in the second quarter of its 2012 fiscal year. The company’s healthy year-over-year revenue growth was bolstered mainly by higher sales in the Asia-Pacific, Latin America, and Central and Eastern Europe, Middle East and Africa (CEEMEA) regions. In an unrelated matter, Visa is the subject of a US Department of Justice inquiry into its PIN-debit card business; the company indicated that it is providing the required information to the federal agency. Emerson Electric, a diversified industrial and infrastructure company, reported a decline in revenue for the second quarter compared to the same period in 2011, due to lower demand in Europe and China. There was particular weakness in its HVAC, Telecommunications and Information Technology units. However, operating margins improved sequentially, helped by strong process management sales. There was also an increase in the order backlog, a positive indicator for future business in the segment.

Regarding our small-cap company holdings, real estate management company Jones Lang LaSalle (JLL) saw healthy year-over-year revenue growth and higher operating margins in the first quarter, supported mainly by strength in its Real Estate Services business. This more than offset a decline in transactional activity in its Property & Facility Management segment. Additionally, management announced an increase in JLL’s semiannual dividend payment. Software and services provider Advent Software garnered strong performance across all business units and geographical regions in the first quarter, with record-high bookings and revenue. Along with its earnings report, the company also introduced a new version of its asset management platform and a cloud-based adaptation of its Syncova product, Syncova Essentials, a margin and financing reporting solution for hedge funds. Management reaffirmed its outlook for business trends for the full fiscal year.