NEW YORK (Reuters) – US companies are responding to the lowest unemployment rate in almost 50 years by increasing their focus on automation to maintain healthy margins as labor costs tick higher.
PHOTO FILE: Handlers place letters and envelopes in cartons at Marina Del Rey, California FedEx station 12 December, 2011. REUTERS / Fred Prouser
The effort to save money through technology is not just about installing robots in factories. Instead, companies appear to be facing a lack of low-cost workers by investing in software and machines that can perform tasks from human resource management to filling recipes.
Citigroup Inc, for example, said that it is expanding its cloud infrastructures to replace the routine tasks needed for human labor. The health insurance company, UnitedHealth Group, told us that its automated efforts should save over $ 1 billion next year. And brewer beer Corona Constellation Brands Inc. said that its spending on automation with the efficacy of bottling bottles in a package, should be trimmed.
These investments are helping to maintain wage growth despite historically low unemployment. The average hourly earnings did not change in October, although the unemployment rate fell to 3.5% from 3.7%, while the annual increase in pay fell slightly to 2.9%.
“I am not concerned about margin margins from pay” due to increased productivity due to automated corporate spending, Jonathan Golub, key equity strategies at Suisse Credit Securities said.
In general, companies dealt with automation of quarterly calls on earnings of more than 1,110 hours since the beginning of the year, an increase of 15% from this time last year and almost double the mention by now in October, 2016, according to Refinitiv data. Corporate orders raised own robotics by 7.2% in the first half of this year compared to 2018, amounting to a total expenditure of $ 869 million, according to the Association for Advance Automation.
Managers and analysts say funds that corporate spending on automation is contributing to a positive earnings surprise. Almost 83% of companies in the S&P 500 with third quarter earnings to date reported earnings above expectations, compared to an average 65% beat rate since 1994, according to I / B / E / S data from Refinitiv.
“Companies are looking for you in ways that are not easy to see when you look at the balance sheet, and all these investments begin to contribute to margins,” said Matt Watson, portfolio manager at James Investment Research.
Watson said that he is now buying companies that are benefiting from automation as they trade on much more attractive valuations than the companies that provide it, which he is leading.
FedEx Corp, for example, is investing in systems to automate its shipping facilities and is testing robots which can handle some deliveries, he said. He also said that he is buying shares of LPL Financial Holdings Inc., a broker-dealer, who is automating more of his client relations platform to increase efficiency, he said.
“You don't have to go into the ugly when it is clear that these companies are saving money” through increased productivity, Watson said.
The most automated sectors are logistics and healthcare, said Jeremie Capron, head of research at ROBO Global, the company behind the Robot Global Robot Global Automation. The firm's ETF is up to 20% for the year to date, in line with S&P 500 benchmark index performance.
Capron sees the greatest opportunity in companies such as Zebra Technologies Corp, which makes readers a radio frequency identification device and real-time positioning systems used in hospitals and e-commerce compliance centers. The company's shares to date are almost 30% for the year.
Reduced costs and a new generation of smaller systems should continue to contribute to revenue growth in the sector, he said.
“We have achieved the level when you do not need great engineering skills to deploy automation because it is easier to use by the software,” he said. “Not only do you see large multinational groups being automated, but these technologies are increasingly available to small and medium-sized businesses.” T
Reporting by David Randall; Edited by Alden Bentley and Nick Zieminski
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