This Week in Earnings – Q3'23

• With 49% of the S&P 500 reporting earnings to date, 60% have reported a positive revenue surprise, below the 1-year average of 69%.
• Companies are reporting revenue 1.0% above consensus estimates, below the 1-year average (+2.1%) and the 5-year average (+2.0%). Continuing, 78% have reported a positive EPS surprise, above the 1-year average of 74%.
• Companies are reporting earnings 7.9% above consensus estimates, well above the 1-year average of (+4.4%) but below the 5-year average (+8.5%).

We analyzed annual revenue and EPS guidance provided by 30 industrial companies with market caps greater than $500M that have reported to date.

On average, the overarching trends are that Industrials are lowering revenue guidance above the All-Company benchmark and raising EPS outlooks at higher levels.

• Revenue: 29% raised, 29% maintained, 42% lowered
• EPS: 48% raised, 28% maintained, 24% lowered

Further, we analyzed the earnings calls for this group and the broader industrial universe to identify key themes.

• Outlook: Macro challenges anticipated to persist into 2024 as interest rates hinder new project starts; meanwhile freight recession appears poised for improvement, but still “not all peaches and cream”
• Demand: reduced discretionary spending finds itself amplified by reluctance to restock inventory; meanwhile despite the recent Ford agreement, UAW strikes far-reaching, prompting cautious guidance and vigilance
• Margins: despite lower demand and signs of downward pricing pressure, execs holding firm on margin rates, helped by pockets of deflation
• Capital Allocation: Companies prioritize organic growth, innovation, and technology investments; M&A is increasingly on the radar should a market dislocation create opportunities
• Regional Spotlight – Europe: Citing stable demand that is more moderate than the U.S., companies see some encouraging signs, though inflation and geopolitical uncertainty remain factors