Middle-market consumer sector companies are leading earnings and revenue growth in the first quarter, according to a Golub Capital analysis of portfolio companies to which it has lent. The average consumer sector company in its universe posted 1Q revenue gains of over 20 percent and earnings gains of over 14 percent. The ability to pass cost increases through to consumers could make the sector an attractive investment space.

The headline figures compare to average revenue growth of 18.4 percent and earnings growth nearer 9 percent across the 150 reporting companies. These apparently robust figures come alongside roaring 8 percent inflation, however, through which lens the profit figure looks about flat. How do other sectors stack up? Technology companies register at the average in revenue and earnings, with healthcare, and especially industrials lagging.

The survey has some limitations. Given the tilt of the Golub Capital portfolio’s sector exposure, middle-market inferences could be stronger in industries excluding financials, utilities, materials and energy. And the readthrough from earnings to M&A is not exactly a direct line. Lower middle-market deal platform Axial’s 1Q analysis of its own platform’s 2000+ deals pegs consumer at 13 percent of transaction volume. King of the hill this quarter was one of Golub’s worst performers by earnings: industrials.

Are acquirers already picking off opportunistic targets suffering temporary inflation or volatility-related capital and cost management issues? Or are buyers yet to realize the inflation-proof nature of the sector, slow to pursue? Perhaps the middle market is vast enough to tell two different stories with data sets that must, after all, overlap somewhat.

Whatever the explanation, the performance of consumer goods companies should be set to turn the heads of acquirers yet to focus on the sector.

Brandon Zero