Commencing the Quarter — Q3’24

As we do every quarter, we analyzed the earnings communication trends of 30 off-cycle companies reporting between September 3 and October 3, 2024, to identify important themes and precedence. These companies span market cap sizes and sectors.

In line with preliminary findings from our Inside The Buy-Side® Earnings Primer® — to be released next week — commentary from recent earnings calls reveals a cautious near-term outlook among executives, along with a dose of tempered optimism toward prospects for a better environment in 2025, but with some potential green shoots.

Amid ongoing macroeconomic uncertainty and a heightened focus on the upcoming U.S. election, many remain in “wait-and-see” mode, but are hopeful that post-election clarity and lower rates may catalyze paused orders and bring hesitant consumers off the sidelines. With the Fed kicking off its long-awaited easing cycle on Sep. 18 with an outsized 50 bps rate cut, some recent calls are expressing optimism for rate relief to bolster consumer confidence into next year, but commentary remains more “hopeful” than “expecting”.

Demand commentary varies by sector, though outside of AI/data-driven demand for chips, most characterize the backdrop as moderate and consistent with recent trends. The consumer remains price-sensitive and budget-constrained, with more comments about pressures broadening beyond low-income cohorts, in line with earnings call commentary from recent months.

Protecting (and growing) margins remains a common theme, while some point to prior cost-cutting and expense management measures providing greater flexibility to self-fund and invest for future growth.

Adding to the near-term uncertainty, warnings of looming U.S. port strikes in the East and Gulf Coast came to fruition this week, before the two sides reached an agreement late Thursday to bring the three-day strike to an end. Companies asked about the potential impact highlighted proactive steps taken, including diverting activity to the West Coast and switching to air freight. Ultimately, it remains too early to determine the extent of the three-day impact and another potential albatross in companies’ ability to meet guidance for the year.

Regionally, the picture remains mixed. Commentary points to signs of recovery in Europe and the UK, as well as a solid environment in parts of Asia. Meanwhile, headwinds in China persist amid weak consumer demand.

Lastly, while this group of off-cycle companies falls on different fiscal years and exhibits different guidance patterns from the norm, for those that updated guidance this quarter, more are lowering than raising or maintaining. We have seen an increase in preannouncements in recent weeks leading up to Q3 earnings season, something we will be monitoring closely in the weeks ahead.

Key themes from our analysis:

• Outlook — Largely Cautious Tone Amid Continued Macro Uncertainty, While the Q2 Trend of Lowering Guidance Continues
• Demand — Strong AI and Data-Driven Appetite Face Supply Constraints; Despite Interest Rate Relief, Views Trend More Moderate/Muted Across the Landscape
• Deflation — Amid a Backdrop of Cooling Costs and a More Stable Price Environment, Execs Tout Steps to Drive Profitability, Controlling the Controllables
• Consumer — Execs Highlight an Even More Cautious Consumer Amid Strained Budgets and Elevated Prices; Spending Remains Focused on Essentials and Value, though Lower Interest Rates Offer Hope for Improved Confidence
• Port Strike — Companies Highlight Proactive Steps Taken to Manage Potential Disruptions Related to East and Gulf Coast Strike
• Election — Election-Related Uncertainty Continues to Serve as a Headwind; Tax and Tariffs Are Top of Mind
• Around the Word — While Europe Shows Signs of Recovery, China Continues to Weigh On Performance; Optimism Related to Recently Announced Stimulus Measures Is Tepid