Industrial production in the United States exhibited a mixed performance in the first quarter of 2024, as reported by the Federal Reserve. Following a 0.8% dip in January, industrial production rebounded by 0.4% in both February and March. However, the overall output for the quarter declined at an annual rate of 1.8%. The Institute for Supply Management’s (ISM) manufacturing index signaled expansion in March, with a reading of 50.3%. However, the average for the January-March quarter remained at 49%, indicating a contractionary trend. New orders displayed a promising sign of growth, with two months of expansion (readings above 50%) within the quarter. Despite this late-quarter improvement in orders, the Industrial Products sector is anticipated to report a 1.6% decline in top-line revenue for the first quarter. This decline is attributed to weak demand experienced earlier in the quarter, which is expected to have been partially offset by the late-quarter growth in orders. The sector continues to grapple with persistent challenges, including rampant cost inflation and constraints on the availability of raw materials, labor, and trucking resources. Although industry players have reported recent improvements in the supply chain, pricing actions, cost-control measures, and productivity enhancements are being pursued to alleviate these headwinds. The Industrial Products sector’s earnings for the first quarter are projected to decline 3.8% year over year. This sector is among the nine out of 16 Zacks Sectors that are likely to witness a decline in earnings during the January-March quarter of 2024. Several prominent industrial stocks, such as Caterpillar (CAT), W.W. Grainger (GWW), Dover Corporation (DOV), Ball Corporation (BALL), and Avery Dennison (AVY), are scheduled to announce their earnings during the week. Their performance will significantly influence market sentiment. Investors pay close attention to Caterpillar’s performance, as it serves as a key economic indicator for the sector. Our quantitative model predicts an earnings beat for a company if it has a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy), or 3 (Hold). This combination increases the chances of an earnings beat. Let’s delve into the factors expected to have influenced the earnings performances of these companies in the to-be-reported quarter and whether they will surpass or fall short of expectations. Caterpillar’s top-line results for the first quarter of 2024 are expected to reflect the impacts of the solid backlog of $27.5 billion reported at the beginning of the quarter and the improvement in order trends throughout the quarter. The Resource Industries segment’s volumes are anticipated to have taken a hit from the weak mining demand, which is likely to have been offset by higher volumes in the Energy & Transportation segment (reflecting the solid demand across Oil & Gas, Power Generation, and Transportation). Despite facing higher costs for raw materials, freight, selling, general and administrative expenses, and research and development, we anticipate CAT’s cost-control measures, restructuring actions, and pricing strategies to have mitigated some of these challenges. Our proven model predicts that CAT will register an earnings beat when it releases first-quarter 2024 results on April 25th. CAT currently holds an Earnings ESP of +0.69% and a Zacks Rank #3. Grainger has been witnessing robust growth in core and non-pandemic product sales for the past few quarters. Additionally, GWW has been focusing on enhancing customer experience through investments in e-commerce and digital capabilities, as well as implementing improvement initiatives within its supply chain. The High-Touch Solutions segment has consistently outperformed the U.S. MRO (maintenance, repair, and operating) market. These factors are likely to have contributed positively to the company’s first-quarter 2024 performance. However, elevated material and freight costs, higher operating costs, and incremental SG&A expenses due to increased technology investments are likely to have negatively impacted its margins. Our proven model does not conclusively predict an earnings beat for Grainger this time around. GWW has an Earnings ESP of 0.00% and a Zacks Rank #2. Grainger is scheduled to release first-quarter 2024 results on April 25th. Dover has been experiencing strong bookings and order backlogs across its segments, driven by robust demand and shipment levels, which are likely to have benefited its first-quarter 2024 top line. Gains from recent acquisitions are also expected to have contributed to the company’s performance in the to-be-reported quarter. Dover’s margins have been buoyed by a strong volume, an improved price-cost spread, and tight cost controls, offsetting the negative impacts of supply-chain constraints, input inflation, and production disruptions. These factors are likely to have contributed to DOV’s profitability in the quarter under review. Our proven model does not conclusively predict an earnings beat for Dover this season. DOV currently has an Earnings ESP of -0.55% and a Zacks Rank #3. Dover is set to release results on April 25th. Ball Corp has recently been facing weaker-than-expected demand due to muted customer spending amidst higher retail prices, particularly in the United States. This is likely to be reflected in the company’s first-quarter 2024 results. High input and labor costs resulting from supply constraints are also anticipated to have impacted the company’s performance in the quarter. However, BALL has been focused on improving its efficiency and reducing costs, which is likely to have mitigated these impacts and supported margins in the to-be-reported quarter. Our model predicts an earnings beat for Ball Corp this time around. BALL has an Earnings ESP of +1.50% and a Zacks Rank #3 at present. BALL is scheduled to release first-quarter 2024 results on April 26th. Avery Dennison has been witnessing solid demand for labeling non-durable consumer goods such as food, beverage, and home and personal care products, which is expected to have aided its first-quarter 2024 revenue growth. However, raw material, labor, and freight cost increases, as well as supply-chain constraints, are expected to have impacted the company’s margins in the to-be-reported quarter. Its ongoing pricing and re-engineering actions are anticipated to have offset these headwinds on its margins. Our proven model predicts an earnings beat for Avery Dennison this time around. The company is scheduled to release first-quarter 2024 results on April 24th. AVY has an Earnings ESP of 1.21% and a Zacks Rank of 2 at present.
Industrial Production Reports Mixed Results for Q1 2024
