This Week in Earnings – Q2’25

This earnings season, executive commentary reflects the ongoing challenges the sector continues to face as executives navigate a dynamic global trade environment and uneven demand across key regions. Indeed, while Q2 earnings for the S&P 500 have surpassed top- and bottom-line estimates at a healthy rate, 79% and 80%, respectively, just 60% of Materials have posted revenue beats, and a meager 48% have reported EPS above consensus – the lowest beat rates for any sector in the Index. 

Demand trends remain mixed across end markets, with a number of companies pointing to a negative impact from tariffs on order rates, albeit with signs of improvement as the quarter progressed. Segments tied to housing, consumer-facing goods, and some industrial segments continue to face headwinds, while AI-related infrastructure, data centers, and select packaging categories show relative strength. Further, executives report customers are maintaining lean inventories and exercising caution in ordering, though some pockets, such as solar and wind, have seen a near-term boost from a rush to get ahead of expiring tax credits.  

Tariffs and global trade policy remain front and center, with companies focused on mitigating impacts through surcharges, supply chain shifts, and pricing actions. While direct tariff costs are often described as manageable, concerns around secondary effects on demand and inflation remain prevalent.  

In response to the uncertain macro environment, companies are doubling down on cost controls, expanding restructuring programs, and pulling back on capex to preserve cash. These efforts are especially pronounced among chemicals, as evidenced by Dow announcing a 50% dividend cut while further ramping its cost-cutting actions.  

Globally, views vary across regions and end markets. Europe continues to struggle with weak industrial demand and macro volatility, while Asia faces persistent overcapacity and competitive pressures, largely from China, that are spilling into other export markets, including India. North America is characterized as stable, if not robust, and Latin America remains a relative bright spot. 

Finally, several companies cite the recently passed OBBBA tax legislation as a tailwind, with bonus depreciation and R&D expensing expected to provide meaningful cash tax benefits and support future investment, though most are still evaluating the full impact. 

Key Themes

• Macro and Outlooks – Challenging, Dynamic Environment Drives Mixed Outlooks, with Tariff Uncertainty and Macro Volatility at the Fore
• Mixed Demand Signals – Cautious Ordering Patterns, Lean Inventories, and Choppiness Persist; Housing, Consumer-facing, and Some Industrial Segments Weaker, While Infrastructure, AI, and Defense Show Continued Strength
• Tariffs & Trade Policy – Companies Offsetting Direct Impact with Surcharges and Supply Chain Shifts; Domestic Steel Sees More Favorable Backdrop, While Chemicals Contend with Anticompetitive Pricing in Some Non-U.S. Markets, and Broader Tariff-driven Demand Concerns Persist
• Expense Management – Cost Saving Programs in Full Effect:  Several Expanding Capex Reductions and Restructuring Efforts to Offset Softer-for-Longer Demand
• OBBBA Impact – Bonus Depreciation and R&D Expensing Seen Driving Cash Tax Benefits; Companies Note Potential to Spur Investment and Continue to Assess Full Implications
• Around the World – Europe Weakness Continues, APAC and India Face Headwinds from Overcapacity, North America Stable but Softer, Latin America Holds Steady, and China a Question Mark