This Week in Earnings – Q4'23

This week, we’re covering Materials in our Sector Beat — a must read if you’re interested in gleaning insights into broader economic indications for 2024.

At a fundamental level, performances out of the Materials sector have garnered the unfortunate distinction as being the only sector outside of Energy who’s blended (reported and estimated) S&P 500 results have culminated in negative YoY top- and bottom-line growth in Q4’23 (-18.9% and -5.7%, respectively). And has been the case across many companies this earnings season, 2024 is being characterized as a “transition year” for much of the sector, but not without its glimmers of upside potential.

While executive commentary has stopped short of characterizing the broad-based slowdown in inventory destocking as a “volume recovery”, early indications through January suggest there are reasons to be optimistic that demand will normalize as the year progresses. Indeed, many outlooks are baking in an uptick in dynamics through the back half of 2024. Focus has thus shifted toward boosting volumes and generating operating leverage, particularly as the price lever is becoming more difficult to pull in the face of weak demand. As a result, productivity enhancements aimed at bolstering profitability, including cost and facility restructuring, are a clear and common theme throughout calls.

The Big So What™? The combined level of bullish and bearish sentiment registered toward Materials was the lowest among all surveyed sectors in our latest our latest Inside The Buy-Side® Earnings Primer® published on January 11. While there remains an overall lack of conviction in the sector, outright bearishness for these names has also receded to five-year lows.