This Week in Earnings – Q1'25

While overall performances across the sector at this stage in Q1 reporting season show Industrials delivering top- and bottom-line beats at a healthy pace, this earnings season is anything but typical. With the volatile trade policy backdrop casting a pall over expectations for the year ahead, the focus during conference calls has been squarely on outlooks and how management teams are thinking about guidance and navigating their way through the “fog” of tariffs.

Though we haven’t seen broad-based guidance withdrawals at this point, Airlines have been quick out of the gate with Southwest, American, and Alaska Air all following Delta this week in pulling 2025 guidance due to sluggish demand and heightened macroeconomic and tariff uncertainty. Executives across other industries paint a similar picture, pointing to softer outlooks, limited visibility, and “hesitancy” among their customers.

As one would expect with tariffs top of mind, mitigation plans have featured heavily during earnings calls, with executives highlighting steps to dampen the impact, both already underway and planned, such as supply chain optimization and pricing actions. In addition, several emphasized relatively favorable positioning due to localized manufacturing footprints or USMCA tariff exemptions.

That said, even for those that describe the direct tariff impact as limited, concerns around the broader impact on customers and end-market demand are prevalent — apart from Defense, which is benefitting from geopolitical turmoil. Amid analyst questions around pull-forward demand and implications for potential drags in the second half of 2025, some executives pointed to lessons learned “from the last go-round” and discussed measures such as capping orders and raising prices to prevent buy-ahead behavior.

Further, while executives express confidence in their ability to push through higher prices, commentary suggests most are taking a measured approach with increases, wary of potential demand destruction and closely watching the interplay between higher prices and order volumes.

Key Themes

• Macro & Outlooks – The Hits Just Keep on Coming”; Broad-Based Uncertainty Disrupts Planning across Industries, Resulting in Both Customer and Executive Consternation
• Tariffs & Mitigation Efforts – Companies Lean on Localization, USMCA Compliance, and Dynamic Pricing as Buffers to New Tariff Regime; Be Prepared to Outline the Mitigation Playbook on Upcoming Calls
• Demand & Growth – Global Uncertainty Serves as a Boon for Defense Co’s. — Everyone Else…It’s a Bit Complicated; With Forward Visibility Clouded, Caution — Not Confidence — is Guiding Most Inventory and Demand Strategies, and Pull-Forward Evidence is Hard to Pin Down
• Pricing – Companies Take a Measured Approach with Increases; While Optimistic on Cost Pass-Through, Demand Elasticity Remains a Watchpoint
• Around the World – Global Demand Signals Show Signs of Resilience Depending on the End Market, but Regional Divergence Grows Sharper; Defense Budgets Ramp in Europe, Green Shoots Emerge in India, Southeast Asia, and Brazil, While China Remains a Recurring Headwind