October 26, 2017 / 5:53 PM / a year ago

U.S. earnings calls zero in on automation, lose Trump focus

    By David Randall
    NEW YORK, Oct 26 (Reuters) - Judging by conference calls
from the latest earnings season, U.S. companies and analysts
have dropped their preoccupation with Washington and shifted
their focus to automation aimed at defending record profit
    Executives or analysts brought up automation on 48
third-quarter earnings calls, according to a Reuters analysis of
transcripts since Oct. 1., compared with just 8 calls mentioning
U.S. President Donald Trump. 
    Mentions of Trump on earnings calls have declined for the
year, from a high of 126 calls between April and May, while
discussions of automation have increased. 
    The focus on automation reflects growing concern among
executives and analysts about rising labor costs, fund managers
said, with jobless claims this month hitting their lowest level
since March 1973. 
    After Trump's November 2016 election victory, hopes ran high
among corporate executives that his campaign promises aimed at
benefiting U.S. companies would turn into reality soon after he
took office in late January. 
    But the Trump Administration has yet to pass healthcare,
infrastructure or corporate tax cut bills that analysts had
predicted would be in place by the end of this year. 
    "You've got a situation where companies are more confident
in investing in technology rather than human capital because
they know it will come with a fixed cost and may do the job just
as well, if not better," said Steve Chiavarone, a portfolio
manager at Federated Investors in New York. 
    Even years after the 2007-2009 financial crisis, executives
are still reluctant to make investments that will eat into their
profit margins, Chiavarone added. 
    The profit margin of the benchmark S&P 500 hit a record of
nearly 11 percent in the second quarter, the highest since at
least 1993, according to Yardeni Research.
    Companies across industries have highlighted investments in
automation this quarter that aim to defend or improve their
     Shoemaker Skechers USA Inc         told analysts that it
had already bought land for a new distribution center but was
still planning what kind of automation it will use there.
    Clearwater Paper Corp         said that an automation
project at its Elwood, Illinois facility was saving the company
approximately $18 million a year. And SunTrust Banks Inc        
said that it was testing automation in more aspects of its
    That investment focus has also prompted investors to pile
into the companies that develop the automations themselves. 
    The $1.5 billion ROBO Global Robotics and Automation Index
ETF         , which holds companies like IPG Photonics Corp
        , Cognex Corp          and Rockwell Automation Inc
       , has gained nearly 40 percent for the year to date,
compared with a 14.2 percent gain in the S&P 500. 
    Barry James, co-portfolio manager of the $3.1 billion James
Golden Rainbow fund          , said his expectations for
meaningful U.S. legislation passing this year or next has
narrowed with Trump and some members of his own Republican Party
increasingly at odds. 
   Given the climate in Washington, it makes sense for companies
to invest more in areas like automation that will increase
productivity without posing much risk, James said. 
    "You could say that we have a divided government now, even
though there's 'Republican' behind the names of all the people
who run it," James said. "Washington looks like it is going to
be less of a factor moving forward."

 (Reporting By David Randall; Editing by Jennifer Ablan and
Meredith Mazzilli)
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