This Week in Earnings

This earnings season, executive commentary across the Materials sector reflects a continuation of downbeat trends observed, with executives navigating choppy conditions and elevated macro uncertainty. While performances and outlooks vary by end market, a challenging operating environment persists, with near-term outlooks clouded by myriad factors, including ongoing geopolitical tensions and the eventual outcome of the U.S. presidential election.

Although this week’s Trump victory brings a dose of clarity, executives broadly see challenging current market conditions persisting through year end. Furthermore, despite some cautious optimism for a more supportive economic backdrop next year with the Fed and other central banks seen moving forward with rate cuts alongside China stimulus efforts, executives remain wary of calling the timing of an eventual demand recovery, with hopes more tilted toward the back half of 2025. 

Indeed, with reporting season for the sector largely complete, Materials are delivering EPS beats at the lowest rate of any sector, with just 56% topping consensus estimates, compared with 76% for the S&P 500. Additionally, 63% of Materials companies in the S&P 500 are reporting revenue below consensus, compared with 40% for the broader index. Additionally, Materials companies are lowering EPS and revenue guidance at a significantly faster clip than our All-Company average.

Given the challenging environment and uncertain outlook, companies continue to emphasize efforts to protect or expand margins through operational efficiency, productivity gains, rationalization, and expense management. To that end, a number of Materials companies highlight progress with previously introduced cost reduction programs, with some rolling out additional measures. Indeed, one such company, Celanese, pointed to a deterioration of market conditions in the quarter, prompting the firm to temporarily cut its dividend by 95% to support its deleveraging efforts. 

Furthermore, with heightened focus on the U.S. election and potential policy actions, commentary around global trade featured heavily during earnings calls, with “tariff” mentions spiking, both for Materials and the broader U.S. corporate landscape. Of note, Steel companies projected optimism for stronger enforcement of trade regulations in 2025, regardless of the election outcome.

Key Themes:

• Macro and Outlook – 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
• Demand – 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
• Margins – Amid Sluggish Volume Environment, Execs Highlight Operational Efficiency, Productivity Enhancements, and Cost Reduction Measures (Past and Present)
• Tariffs – 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