Industrials in our Sector Beat

In our early analysis of industrial earnings thus far, “stability” was the common tone evoked on calls — a welcomed message from one of the economy’s largest constituencies, and a far cry from recession projections heard throughout much of last year. Indeed, this is in line with our Industrial Sentiment Survey® which found a prevailing sense of neutralness among both investors and executives alike.  

Overall outlooks for the year ahead are anchored in projections for stable or improving market conditions, particularly amid expectations for industrial projects to gain momentum with the anticipated decline in interest rates. However, executive reassurances and 2024 economic growth overtures did come with a few caveats. Namely, much of the sector appears to be transitioning toward a more normalized pricing environment. While few have been required to take drastic measures against deflation (which remains hard to come by), commentary suggests the best days for pushing pricing may be behind us.  

Moreover, industrials continue to grapple with supply chain complexities and escalating geopolitical risk. While there are signs of improvement in supply chain efficiency, structural challenges persist, especially in critical areas like aerospace and defense, which are grappling with human capital and resource shortages.  

Still, with three-quarters of industrials thus far forecasting revenues and EPS above 2023 actuals, 2024 is shaping up to be a better year, in line with our Inside The Buy-Side® research that we published ahead of this earnings period. 

Key Themes: 

• Macro Outlook — With Nearly a Month Under their Belts, Executives Express Confidence Over Relative Economic Stability, with Several Portending Growth in 2024 Given More Recent Customer Sentiment
• Demand — Order Trends are Normalizing, or “At Least Not Worsening”
• Pricing and Margins — Profitability Remains Favorable as Price Normalization — Not Deflation — is the Norm, Input Cost Pressures Continue to Persist for Some
• Supply Chain — “Maybe Not Perfect but Improved”; Inventory Efficiency Returns to Broader Industrials Though Airlines and Aerospace Defense Industries Continue to Face Structural Challenges
• Geopolitics — Radar Remains on Conflicts Overseas and at Home, “Commanding” Executive’s “Attention and Concern”