This Week in Earnings – Q3’24

Challenging Market Conditions Persist, with Few Pockets of Strength; Execs Point to Near-term Uncertainty on Multiple Fronts, but Are Hopeful for Greater Clarity in the New Year

• Linde Plc ($219.2B, Specialty Chemicals): “We anticipated sluggish industrial activity this quarter, and it played out as expected. Looking ahead, I have concerns regarding continued economic weakness, so we’ve taken a series of proactive actions, including targeted cost reductions. It affects approximately 2% of the workforce globally and is expected to be mostly completed in the next few months.”
• Eastman Chemicals ($11.7B, Specialty Chemicals): “There’s a lot of uncertainty in the macro economy. You’ve got the election coming up. You have instability in the Middle East. Without a doubt, we see it in Q4. Brands and retailers are being cautious right now. They’re uncertain about where the economy is headed, so they’re being a little bit careful. We need to get to January, past the election and some of these uncertainties, and see how the economy looks. We’ll provide you a good update on the Q4 call.”
• Celanese ($10.2B, Chemicals): “For 2025, there’s so much uncertainty. While we are going to take a lot of steps to help ourselves, to really control what we can control, there are a lot of open questions out there around 2025, [such as] whether the market environment gets better or deteriorates and what we see in terms of interest rates. And it’s just simply too early to speak with any authority about 2025.”
• Steel Dynamics ($20.6B, Steel): “Heading into Q4, we’re going to see the normal seasonality that you typically see in anything that’s tied to construction. But as we look at 2025, there’s opportunity for not just price support, but price appreciation, as we’ve talked about interest rate changes and additional demand coming from public funding, etc. We’re feeling really good with the steady aspect of what we’ve seen in the last 6-9 months. And now, we’ll just get through the Q4 seasonality and then head toward what we think is going to be a really robust 2025.”
• Sherwin-Williams ($94.3B, Specialty Chemicals): “In a Q3 characterized by ongoing choppy demand, Sherwin-Williams grew consolidated sales, expanded gross margin, and grew diluted EPS and EBITDA. We continued to invest in the quarter to capitalize on what we see as unprecedented long-term share gain opportunity. We are maintaining our full-year EPS guidance. We recognize the current range is wider than typical entering a Q4. This range accounts for several variables that are hard to forecast precisely over the next two months, including timing of demand related to recovery from Hurricanes Helene and Milton, and the potential for extended holiday shutdowns among our industrial customers.”

Industrial and Auto Remain Weak Globally, While Secular Trends —Electrification, AI Data Centers — Offset Weakness for Some; Hope Remains for a Gradual Demand Recovery Next Year with Help from Additional Rate Cuts and Post-election Clarity, But with the Timing Uncertain

• Sherwin-Williams ($94.3B, Specialty Chemicals): “The single largest variable heading into next year is the timing and pacing of a true inflection in the demand While several signals are beginning to move from red to yellow, and some from yellow to green, our initial view is that demand is likely to remain choppy in 1H25. Sherwin-Williams is incredibly well positioned in each of our targeted end markets. We are confident we will outperform the market in all environments, and significantly so when demand becomes more robust.”
• Dow Inc (33.5B, Chemicals): “We continue to experience muted demand across some end markets and regions with the greatest pressure in Europe and China. Global manufacturing PMI has been decelerating over the past three months, and consumer spending remains pressured by persistent inflation. That said, we’re monitoring the impact of rate cuts in the U.S. and Europe, as well as recent stimulus plans in China to boost economic activity, which could provide some positive momentum for 2025.”
• Eastman Chemicals ($11.7B, Specialty Chemicals): “The macro is clearly uncertain right now. What we do know at this point is that customer inventory destocking is over, and we’re reconnected to primary demand. We can also say that in what we call our stable markets – things like personal care, aviation, water treatment, ag – those markets have been steadily growing at modest rates this year, and we expect that to continue into next year. The discretionary markets – which are auto, housing, consumer durables – that’s where demand has not really improved very much.”
• Cleveland-Cliffs ($5.6B, Steel): “North American automotive build rates in Q3 were the lowest since the depths of the semiconductor shortage a few years ago, with only 3.75M units built during the quarter. With our position as a large automotive supplier, this drove our shipments, average selling prices, and unit margins down QoQ. And compounding this, our non-automotive business also saw continued weakness in demand and pricing, both in flat rolled and plate.”
• Celanese ($10.2B, Chemicals): “In Q3, we faced a severely constrained demand environment that, in some cases like auto, degraded swiftly. We expect demand conditions to worsen in Q4, as automotive and industrial segments react to recent dynamics by seasonally destocking at heavier than normal levels. While we expect this destocking to be temporary, we will significantly slow our production to match this demand level. Celanese will continue to take actions commensurate with the current demand environment.”
• Freeport-McMoRan ($67.3B, Copper): “At the micro level, we continue to see secular demand trends associated with electrification, providing strong demand for copper and offsetting the impact of a cyclical slowdown. In the U.S., our customers continue to report strong demand for power cable and building wire associated with substantial investment in electrical infrastructure and AI data centers. This growing sector more than offset weakness in traditional demand sectors, residential construction, and autos.”

Interest Rates

• Nucor ($39.6B, Steel): “While the broader U.S. economy continues to be resilient, decreased steel demand from several of our end use markets, along with higher import volumes, has put pressure on our margins throughout the year. The Federal Reserve’s recent actions are a good start, but it will likely take more time, more rate relief, and looser lending conditions before we start to see the flow through effect in the construction, industrial and consumer durables market that are so impactful to steel demand.”
• Steel Dynamics ($20.6B, Steel): “As interest rates decline and public funding begins to be distributed post-election and into 2025, we expect to see increased fixed asset investment and corresponding demand drivers for steel and steel fabrication products next year.”
• Eastman Chemicals ($11.7B, Specialty Chemicals): “Lower interest rates are for sure going to help improve the affordability of cars, affordability of homes. When interest rates start to become more affordable, which we expect will happen through next year at some point, that will certainly drive upside for us.”
• Element Solutions ($6.7B, Specialty Chemicals): “It remains to be seen whether interest rate cuts in the U.S. and Europe, as well as Chinese stimulus, will prove to be a tailwind for large industrial sectors like construction and automotive that have remained weak for much of 2024.”
• The Chemours Company ($3.1B, Specialty Chemicals): “There’s not really a sign of market recovery, but we’re very excited about the interest rate reductions in the U.S. We’ll see what happens this week with the Fed, and also some [rate] reductions in Europe.”

U.S. Election

• Cleveland-Cliffs ($5.6B, Steel): “As far as volume, we believe that as soon as we have a little more clarity, which should happen in the next few days [following] the election, customers will start placing orders and things will start to heat up I am anticipating a very strong Q1 and believe we are going to have volumes back to normal by 1H of next year.”
• Alpha Metallurgical Resources ($3.1B, Coking Coal): “We remain hopeful. And I think once we get past the election next week, maybe some things will start taking shape as far as people positioning, seeing where economic activity starts growing back up in different areas of the world. But for right now, our view for planning purposes is it’s going to look a little bit like what we’re currently seeing.”
• Vulcan Materials ($38.5B, Building Materials): “If you talk to our customers and the large general contractors, they’re bidding a lot of work, but nobody’s pushing the button. I think that with the election being over, interest rates easing, hopefully in 2H of next year, we’ll see some of these come off the sideline. But there is a lot pent up out there that’s kind of a ‘wait and see’. So, we hope that a number of factors helps ease that and impact 2H of 2025, but probably a bigger impact on 2026.”

Amid Sluggish Volume Environment, Execs Highlight Operational Efficiency, Productivity Enhancements, and Cost Reduction Measures (Past and Present)

• DuPont de Nemours ($35.8B, Specialty Chemicals): “We took a lot of restructuring actions earlier this year. We’re seeing the benefit of those. We’re driving productivity and operational excellence. We took a lot of actions, especially on the plant fixed-cost front, as we saw the volumes decline last year. And we’ve done a really nice job of keeping those out as volumes have recovered. So that’s also driving a piece of our margin recovery.”
• Cleveland-Cliffs ($5.6B, Steel): “[For unit cost], we were down $40 a ton versus our guide of $30, and that’s really difficult to do. That comes from improved operational efficiencies and just continuing to be disciplined. These Q3 costs are the lowest level since 2021. So, we’re going to continue to bring cost down.”
• The Chemours Company ($3.1B, Specialty Chemicals): “Favorable product mix on top of additional cost reduction efforts should continue to drive improvements in APM’s margins as we head into next year.”
• Quaker Chemical ($3.2B, Specialty Chemicals): “We’re planning to build on the progress we’ve made over the last couple of years, so holding on and continuing to operate at our target margin range. We continue to optimize the organization, find efficiencies so that we’re successful regardless of the macro environment – as we’ve talked about before, control the things that we can control.”
• Element Solutions ($6.7B, Specialty Chemicals): “We have an ongoing productivity effort to make the business better every quarter. If you look at the margins in our I&S segment, in a declining volume environment we’re driving margins favorably and growing earnings. And that’s a testament to what we’re doing to make the business better.”

Cost Reduction Programs

• PPG Industries ($29.1B, Specialty Chemicals): “We have announced a comprehensive restructuring program to eliminate associated stranded costs from these transactions, and separately, to enable footprint rationalization, specifically in Europe and a few other global coatings businesses. This program will deliver approximately $175M once fully implemented, including savings of $60M in 2025. These self-help actions reflect our ongoing commitment to aggressively manage our controllables.”
• International Paper ($20.4B, Packaging & Containers): “We will drive profitable growth by being the low-cost producer and the most reliable and innovative sustainable packaging solutions provider in North America and EMEA. We’re using our 80/20 approach to guide investments and align resources, to win with our most attractive customers, reduce complexity and cost around the company, and drive transformational performance.”
• Westlake ($17.6B, Specialty Chemicals): “During Q3, we continued to make progress on our company-wide cost savings initiative with approximately $35M of savings delivered during the quarter. These savings combined with those achieved in 1H of 2024 total ~$120M of long-term cost reductions from the first three quarters of 2024 toward our full year target of $125M to $150M.”
• Celanese ($10.2B, Chemicals): “To further help us navigate this challenging environment, we have identified and will take additional bold actions to strengthen earnings and cash generation. We have a strong track record of delivery and operational excellence and are confident that we are taking the right actions. For example, we are significantly slowing production to match demand in Q4 and implementing further cost reductions, particularly in SG&A.”
• Hunstman ($3.6B, Chemicals): “We continue to look at all of our production sites and examine our cost structures, supply agreements and operating rates. For the end of the year, we will be initiating a further $50M cost reduction program in our global Polyurethanes business. This is in addition to the $280M in costs we’ve taken out of the entire company over the past few years.”
• The Chemours Company ($3.1B, Specialty Chemicals): “Starting with operational excellence, we can achieve incremental run rate cost savings of greater than $250M across the company starting next year through 2027. This overall cost savings plan comprises an additional $100M cost savings program under our TT Transformation Plan and $150M in targeted savings. Given the cyclicality of our industry, cost management must be part of our DNA.”
• O-I Glass ($2.0B, Packaging & Containers): “With regard to driving productivity, we are working to take out all redundant and low profitability capacity. Significantly increasing productivity is the cornerstone of the turnaround of the business. We are evaluating the closure of at least 7% of capacity by mid-2025 to reduce the fixed cost base of the network. The closure of unprofitable and redundant capacity should generate more than $100M of annualized savings. As part of this evaluation, we have already announced the closure of approximately 4% of capacity, which should benefit 2025 results.”

Mentions Jump Heading into the U.S. Election, With Execs Closely Monitoring Evolving Global Trade Dynamics; Steel Industry Looking Forward to Stronger Enforcement of Trade Regulations After Year of Pricing Pressure from Imports

• Nucor ($39.6B, Steel): “There’s been a lot of attention on trade recently, so let me touch on that topic now. Nucor, along with other domestic steel producers, continues to advocate for the vigorous enforcement of trade laws. The recent surge in high emissions imported steel continues to negatively affect both domestic steel prices and mill utilization rates. As a result, Nucor recently joined several other steel producers in filing cases against imports from 10 nations. With the 2024 presidential election just two weeks away, we believe the American steel industry is well-positioned regardless of the outcome. After years of work by our industry, there is now bipartisan consensus that strong trade enforcement is a priority and that we need to fix our trading relationship with China.”
• Steel Dynamics ($20.6B, Steel): “Underlying steel demand remains steady, but a surge in steel imports put pressure on the supply dynamics in certain product areas, specifically for coated flat rolled steel products. In response, we levied a trade case, and we expect to get a preliminary ruling from the ITC in a few weeks.”
• Dow Inc (33.5B, Chemicals): “We see tariffs today in some of the businesses that we participate in. And we are still net exporter in general out of the U.S. Gulf Coast because of the very strong competitive advantages that we have here. The large markets, China, in particular, is still an importer and is going to be an importer for quite some time. So that will exist. In most of the other markets, we’re in the market to be a domestic player. So we’re in Europe for Europe. And for the assets that we have in China, we’re in China for China. There’s a lot of discussion going on around tariffs. We’re typically not in the crosshairs of some of the issues that are national security related, so it doesn’t have a particular impact on us.”
• Cabot Corp ($5.9B, Specialty Chemicals): “We’ve seen recently tariffs imposed in Mexico, for example, on Chinese passenger car and light truck tires. Those just went into effect last month, and then more recently, anti-dumping duties imposed by the U.S. on Thai truck tires, TBR Tires. And so, certainly some pushback to the elevated level of tire imports on the trade and tariff front. It’s a dynamic situation and one that we’re watching and managing closely.”
• Kaiser Aluminum ($1.4B, Aluminum): “[Regarding tariffs], anything that helps strengthen North America manufacturing is going to be a big positive for us. You’ve seen some momentum move on those tariffs. We’ve seen Canada and Mexico impose 25% tariff levels as opposed to what were maybe 10% earlier. So that momentum is building, and I believe ultimately stronger North America manufacturing will do nothing but strengthen this company.”
• Sherwin-Williams ($94.3B, Specialty Chemicals): “Epoxy resins were also up in the quarter, and there are some additional tariffs that might come in and impact that. We haven’t seen that propylene or epoxy necessarily impact our basket meaningfully yet, but we’re watching it very closely, and we’ll see where it goes as we get into the next year.”