Q2'24 Inside The Buy-Side® Earnings Primer®

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Earnings Snap and Industrials in our Sector Beat

With 29% of the S&P 500 reporting earnings to date, 68% have reported a positive EPS surprise, below the 1-year average of 75%. Companies are reporting earnings 1.6% above consensus estimates, well below the 1-year average of (+6.5%) and the 5-year average (+8.6%).

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

Key Takeaways:

    • 50% provided annual guidance, an increase of 10% since last year; 7% provided quarterly and annual guidance, in line with last year, and 43% provided no guidance, a decrease of 10%
    • On average, revenue guidance midpoints assumed 7.6% growth, compared to 5.2% in 2022, though it is important to note this is weighted toward Aerospace & Defense and Airline companies; spreads averaged 230 bps, a decrease of 70 bps relative to last year
    • The majority maintained or narrowed revenue guidance ranges versus their practice last year at this time: 27% narrowed, 18% widened, 37% maintained, 18% newly initiated
    • EPS guidance spreads averaged $0.52, an increase of $0.23
    • EPS spreads were mixed versus their practice last year at this time: 27% narrowed, 19% widened, 27% maintained, 27% newly initiated

    We analyzed the earnings calls for this same group and the broader industrial universe to identify key themes.

    Key Takeaways:

    • With industrial earnings prints trickling in, full-year results reflect many of the ongoing macro dynamics. The lingering impacts of a strained supply chain, coupled with demand softness and inventory realignment, continue to weigh on company sentiment. Persistent labor tightness and component shortages are still fueling increased costs across the value chain, and companies are touting the importance of preserving margins through operational excellence.
    • That said, executives on calls report being “poised” for growth. Senior leaders note inflation is moderating, and many expect input costs to plateau as the year progresses. Those tied to increased defense spending expect a bump throughout the year. Airline profits have surpassed analyst estimates, pricing across certain sectors appears to be holding up, and logistics companies are signaling optimism for the second half of the year.
    • Thus far, capital priorities reflect this thinking. As a result of a tumultuous 2022, industrials entered the new year with balance sheet strength, and an increasing number of executives point to growth opportunities as the most compelling use of cash.
    • Of the calendar-year companies that have initiated guides thus far, revenue spreads have shrunk slightly relative to last year, but average EPS expectations are meaningfully wider. That said, a sober view of the next few months has been coupled with measured optimism toward what can be controlled.

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    © 2024 Corbin Advisors. 
    All Rights Reserved.
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