Closing the Quarter – Q4’24
In today’s thought leadership, we cover:
- Key Events this week
- EU Omnibus Bill Spotlight — key updates and considerations
- Closing the Quarter Summary — Q4’24 earnings performance, guidance moves and consensus shifts, U.S. Presidential Administration implications, and capital allocation
Key Events
Global Politics
- President Trump issued a statement (via Truth Social) on Thursday reiterating that tariffs on Canada and Mexico will go into effect next Tuesday, March 4th. President Trump added that China will also be charged an additional 10% tariff on that date and that the April 2nd date for reciprocal tariffs “will remain in full force and effect”. (Source: President Donald Trump, CNBC)
- President Trump threatened to impose 25% tariffs on imports from the European Union, claiming that the economic and political bloc was formed “to screw” the U.S. “We’ll be announcing it very soon,” he told reporters of the EU measures on Wednesday. “It’ll be [a] 25% [tariff] generally speaking, and that will be on cars and all other things.”(Source: President Donald Trump, CNBC)
- Germany’s mainstream conservatives led by Friedrich Merz won the country’s national election, ensuring that Ukraine has an even stronger supporter in the European Union’s largest country and creating hopes for renewal in an economic powerhouse that has been badly battered in recent years. The far-right, anti-immigrant Alternative for Germany (AfD) surged to become the second-largest political force. (Source: Associated Press)
U.S. GDP
- U.S. Q4 GDP grew at an annualized pace of 2.3% in Q4’24 according to the second estimate from the Bureau of Economic Analysis. This was in line with BEA’s initial estimate from last month but slower than the 3.1% annualized growth in Q3. The latest estimate continues to suggest real GDP grew 2.8% YoY for 2024. BEA’s final Q4 estimate Q4 GDP will be published on March 27th. (Source: BEA)
Labor Market
- U.S. Initial Jobless Claims rose to 242,000 for week ended Feb. 22, above consensus estimates for 221,000 and up from the prior week’s 220,000 level. Continuing Claims totaled 1.826M for the week ended Feb. 15, down 5,000 from the prior week. (Source: Labor Department)
Consumer Sentiment
- The Conference Board’s Consumer Confidence Index dropped to 98.3 in February, down from last month’s 105.3 and below economist forecasts for a decline to 102.5. The 7-point drop marks the biggest pullback since August 2021, pushing the index to the bottom of the range that has prevailed since 2022. The agency noted “a sharp increase in the mentions of trade and tariffs, back to a level unseen since 2019.” The report follows last Friday’s University of Michigan consumer sentiment survey, which dropped to 64.7 in February (from January’s 71.1), the lowest in seven months. (Source: Conference Board)
EU Omnibus Bill Spotlight
On Wednesday, the European Commission proposed major revisions to the Corporate Sustainability Reporting Directive (CSRD) as part of its Omnibus Simplification package. If adopted, these changes will significantly reduce the number of companies subject to CSRD reporting and extend compliance deadlines — a critical update for U.S. companies with European operations or supply chain exposure.
Corbin is closely tracking these policy shifts and we can provide tailored guidance on whether and how CSRD still applies to your business. If you’d like to discuss your company’s sustainability reporting and messaging, please reach out.
Key Changes Impacting U.S. Companies:
Fewer U.S. Companies Will Be Covered but Larger Issuers Will Remain in Scope
- The CSRD threshold increases from 250 to 1,000 employees, exempting 80% of previously covered companies
- Non-EU parent companies will now be subject to CSRD only if they generate more than €450M in EU revenue (up from €150M)
More Time to Prepare
- The CSRD reporting timeline is extended by two years, with the next reporting wave pushed to 2028
- If CSRD still applies, companies should use this extra time to build a strategic sustainability reporting approach rather than rushing compliance
Simplified Reporting Requirements
- Sector-specific standards have been eliminated, reducing compliance complexity
- The European Sustainability Reporting Standards (ESRS) will be revised to cut unnecessary data points and prioritize quantitative disclosure
- Assurance requirements will remain limited, with no escalation to reasonable assurance as initially planned
- Double Materiality remains a core requirement, meaning companies in scope must still assess both financial and impact materiality in their reporting
Supply Chain Due Diligence Limited to Direct Suppliers
- The Corporate Sustainability Due Diligence Directive (CSDDD) will now only require due diligence on direct suppliers — not the full supply chain
- The frequency of supply chain assessments is reduced from annual to every five years
What Companies Should Do Now:
- Reassess CSRD Applicability: If your company was preparing for compliance, confirm whether you are still in scope based on the 1,000-employee and €450M revenue thresholds
- Refine Your Sustainability Reporting Approach: The Double Materiality principle remains intact, making it important for companies to prioritize the ESG issues that are most relevant (i.e., material) to their business and stakeholders
- Align Your Reporting Strategy: With CSRD, SEC rules, and ISSB standards converging, U.S. companies should focus on harmonizing disclosures across multiple frameworks
- Monitor Regulatory Developments: The Omnibus proposal still requires approval from the European Parliament and EU Member States, so further refinements are possible before final adoption
Closing the Quarter Summary
Heading into earnings season, our Q4’24 Inside The Buy-Side® Earnings Primer® survey, published January 9, registered a notable pickup in sentiment but with new and persistent challenges tempering outright bullishness, including policy uncertainty and tariff concerns.
While only 14% reported a negative shift in sentiment due to the result of the U.S. Presidential election, 87% expressed heightened or sustained concern over U.S. trade and tariffs when aided — a 26% sequential uptick. Inflation, which many believed was receding in the previous quarter’s survey, reemerged as a key issue, jumping 17 points to 28%.
Finally, investors expressed a clear growth preference, with growth being prioritized over margins by a 2:1 ratio, and 66% favoring Reinvestment as the top use of cash, a 27-point increase QoQ.
With Q4’24 earnings in the books, we “Close the Quarter” with some notable themes:
1. Earnings Performance
Q4 Earnings Prints Surprised to the Upside, But with Deceleration Forecasted Ahead; Revenue Beats Settled Below the 5-Year Average
Overall, Q4 prints have fared better than expected, particularly on the bottom line, but with decelerating expectations ahead.
With over 90% of S&P 500 companies reporting earnings to date, the index is reporting YoY blended1 earnings growth of 15.7%, 2.9% above the rate estimated toward the end of Q3 earnings (as of 10/1/24), and 6.1% above the estimated rate at the beginning of the year. Notably, 76% reported a positive EPS surprise, just below the 5-year average of 77%.
However, while S&P 500 earnings, in aggregate, have outpaced initial expectations, Q1’25 estimates are decelerating. As of today, Q1’25 YoY blended earnings growth is expected to be 8.3%, a marked stepdown from the 14.3% expected as of October 2024 and 12.2% expected in January 2025, with all but Utilities seeing estimates lowered.
As for revenue, only 64% have reported positive top-line surprises, below the 5-year average of 69%, with prints 1.0% above consensus estimates, again below the 5-year average of 2.1%. Looking ahead, Q1’25 S&P 500 estimates are calling for 4.3% top-line growth, down slightly from the actual (Q4’24) 4.9% blended rate.
2. Guidance Moves and Consensus Shifts
More Companies Widened Annual Top-Line Guidance Spreads Versus Practice this Time Last Year, while 2025 EPS Forecasts are More Mixed; Across Sectors, roughly 7 in 10 Companies Experienced Positive Revenue and EPS Consensus Revisions Following Earnings Results
Guidance Moves
We analyzed annual revenue and EPS guidance trends across the S&P 500.4 Below are our findings.5
Annual Guidance (YoY Trends)
EPS: More companies, 36%, Narrowed the range relative to last year, though 34% Widened and 30% Maintained; average EPS spreads decreased from $0.34 to $0.27 on EPS of $8.12to $8.39
- 73% of companies expect full-year 2025 results to be above 2024 actuals
- 61% of companies forecasting annual EPS guides above consensus
Revenue: More companies, 46%, Widened the range relative to last year, while 40% Narrowed, and 14% Maintained; average spreads decreased 30 bps, with an average range of 1.7%
- 86% of companies expect full-year 2025 results to be above 2025 actuals
- 30% of companies are forecasting annual Revenue guides above consensus
Consensus Shifts
For revenue, 69% of companies saw estimates increased, while 18% decreased, and 14% maintained. Again, upward revisions were broad-based, with the majority of sectors seeing increases at a more than 70% clip. Energy, Communications, and Materials saw the largest proportion of lowered consensus across sectors, 48%, 41%, and 27%, respectively, though still offset by an equal or greater number of increases.
Combining both metrics, Financials, Industrials, Consumer Discretionary, Healthcare, and Utilities stood out with 70% of companies seeing both revenue and EPS revisions increase. In contrast, Energy and Staples exhibited a more balanced trend, with the proportion of company increases and decreases more evenly split across both KPIs.
For revenue, 69% of companies saw estimates increased, while 18% decreased, and 14% maintained. Again, upward revisions were broad-based, with the majority of sectors seeing increases at a more than 70% clip. Energy, Communications, and Materials saw the largest proportion of lowered consensus across sectors, 48%, 41%, and 27%, respectively, though still offset by an equal or greater number of increases.
Combining both metrics, Financials, Industrials, Consumer Discretionary, Healthcare, and Utilities stood out with 70% of companies seeing both revenue and EPS revisions increase. In contrast, Energy and Staples exhibited a more balanced trend, with the proportion of company increases and decreases more evenly split across both KPIs.
3. A New ‘Don’
First Two Months of 2025 See President Trump and His Administration Utilize ‘Information Flooding’ as Key Policy Tactic, Leaving Many Investors Looking for Clarity on Earnings Calls; Avoid Discussions about the Unknown, But Prepare to Provide Increased Transparency / Perspective in the Near Future
As we anticipated, the election of U.S. President Donald Trump has ushered in a new era of policy communications and, in turn, necessitates an updated corporate communication strategy and approach.
President Trump’s blitzkrieg style, which we have dubbed ‘information flooding,’ may be a familiar tactic to reporters but has significantly disrupted the day-to-day schedules of executives and investors. This initial deluge of policy announcements, frequently conveyed through social media or other non-traditional channels, has heightened the levels of policy uncertainty to nearly unprecedented levels. Indeed, data from the Access World News database, which compiles information from over 2,000 U.S. newspapers, indicates that both the Trade Uncertainty and Economic Policy Uncertainty indices are at or near record highs, excluding the COVID-19 pandemic timeframe.
In response to this new landscape, as we outlined in our Annual Letter to Our Clients earlier this year, it has become essential to establish a dedicated Trump Task Force responsible for identifying and assessing how shifts in policy impact your company in a material manner and, in turn, developing a coordinated and strategic investor communication approach.
Below, we outline three prominent areas of discussion this quarter — tariffs, DOGE, and immigration — and end with some communication considerations and best practices.
Tariffs
Quarter to date, we have seen nothing short of a proliferation of tariff mentions throughout calls, even when compared to the Trump 1.0 trade-war period. This uptick is not only notable for its volume but also for its expanded geographic scope, with non-U.S. mentions reaching unprecedented levels so far this quarter.
In an analysis of earnings calls, analyst questions center around geographic exposure, supplier diversification efforts, cost absorption strategies, indications of pull-forward demand, and impacts on guidance assumptions. Regarding the latter, the volume of tariff questions related to guidance during earnings calls and conferences has surged, posting a 133% QoQ increase and standing 63% higher than the previous peak in Q4 2018. As the investment community seeks to understand and quantify the impact of tariffs more precisely — and as the tariff picture hopefully becomes less blurry — we anticipate these discussions will continue to grow in both intensity and frequency. As such, we encourage our clients to proactively prepare for enhanced transparency and perspective.
Tariffs: Selected Examples of Common Analyst Questions
Feb. 27 – Donaldson ($8.3B, Industrials, Specialty Industrial Machinery)
Question: “To what degree are the auto OEMs talking about, if there are tariffs, that it triggers the destock cycle or do they see sort of a bit of a pre-buy to get ahead of it? So, if you can just give a sense for kind of do you see kind of the initial impact, kind of which way it swings?”
Answer: “Within the Off-Road sector, we have not had pre-buys or any of those activities out of our customers as a result of any of the tariff type of activities. Remember, some of those Off-Road markets like Ag are really difficult. To see them taking on inventory right now would be an interesting move as they try to really work down the inventory that’s out in the channel. So, we’ll see. We’ll keep an eye on that. We don’t really see that happening. It’s a bit more at the macro, business as usual across that base relative to manufacturing and delivering for them. The one change that maybe has happened or accelerated in the behavior is OEs asking us our capability of building their products outside the U.S. We are a net exporter from the U.S. And so, to the extent that OEs will want to have us rotate and build it more closely to their factories rather than have it in U.S. and export it, we have received questions regarding that. That’s the only behavioral change really.”
Feb. 27 – Bath & Body Works ($7.8B, Consumer Discretionary, Specialty Retail)
Question: “If we go back to your tariff comments, can you remind us what your large countries are in terms of exposure? I know you built in China, but you said nothing else at this point due to the uncertainty. So, just where is your exposure by country?”
Answer: “So, of our mix, about 10% of our supply is China, and we have included that in our outlook. And as you think about Canada and Mexico, they represent about 7% combined split relatively evenly. So, we’re continuing to watch the market, what is going on. Canada, particularly given our business there as well as our production. We’re preparing to adapt to whatever market we’re in and working on mitigation strategies to help offset any potential future impact.”
Feb. 27 – Dell Technologies ($77.2B, Tech., Tech.Hardware, Storage & Peripherals)
Question: “Could you be more specific on the guidance for this year with regard to tariffs? What are you factoring in for China, in particular? Is it the 10%? Or today, this morning’s 20%? And then are you instituting any remedies? And what are your thoughts about remedies like raising prices, moving stuff around? And how are you adjusting for that?
Answer: “This is a pretty darn dynamic environment as represented by what we heard this morning. It’s fluid. We’ve built an industry-leading supply chain that’s globally diverse, agile, resilient, that helps us minimize the impacts of these trade regulations, tariffs to our customers and shareholders. We’ve been monitoring this for some time. We’ve taken our digital supply chain with our digital twins actually using some AI modeling to look at every possible scenario that you might imagine of this country, that country, restrictions here, rates here to help us understand how we optimize our network and how we do that in the least amount of time at the speed of Dell. And whatever tariff we cannot mitigate, we view that as an input cost. And as our input costs go up, it may require us to adjust prices. That’s what we’ve done in the past. I can’t imagine we’re going to do anything differently.”
DOGE
Similarly, government efficiency conversations have amplified as a result of the Department of Government Efficiency’s (DOGE) efforts to streamline spending and reduce waste.
A majority of mentions, 55%, are concentrated within the Industrials sector, primarily during Professional Services and Aerospace and Defense webcasts, followed by Tech (26%) and REITs (10%). Investors are keen to understand Federal exposure, second-order effects on state spending, how government reforms may influence market demand and timing, as well as any regulatory challenges anticipated.
DOGE: Selected Examples of Common Analyst Questions
Jan. 30 – L3Harris Technologies ($38.2B, Industrials, Aerospace & Defense)
Question: “You wrote a letter to DOGE leaders just before the inauguration. And you recommended policy recommendations. Have you heard any feedback,or have you had any active discussions? And how do you think this is all going to play out with DOGE and the impacts on the DoD bureaucracy, which I think you’ve called out many times? And just how you’re thinking that obviously it’s been an overhang on the group. We’ve seen a lot of valuations compressed.”
Answer: “I’m excited about the DOGE and I try to parallel the similarities, what we’ve been doing this past year. And as I think as to how we regard as a nation, each and every policy and regulation is put in place to reduce risk and they’re well intended, when you step back after a few decades, I believe the cumulative effect of all these risk reduction policies and procedures have actually created more risk than they’ve actually resolved or mitigated. So, to answer your question, we received lots of positive feedback from members of Congress. I was in the Pentagon last week, a couple of other classified meetings. I think a lot of people read the letter. I’m really just trying to start the dialogue. I think Congress plays a role. I think the DoD plays a role…There’s going to be unprecedented change in 2025 and some will be able to adapt and take advantage of it. We plan to be one of those companies and maybe others won’t, but let’s see what the future brings.”
Feb. 13 – Motorola Solutions ($71.4B, Tech, Communication Equipment)
Question: “With all the recent Trump Administration impacts and federal spending shifts in DOGE, are you guys seeing any impact in terms of customer behavior or timing of deployments?”
Answer: “No, we’re not. I think that my view and our view of DOGE, we like the opportunity where the government is deploying that organization to get after frivolous and wasteful spending, which I think is a good thing overall. But in direct answer to your question, we’re not seeing any changes in customer behavior as a result of that effort at this point in time.”
Feb. 25 – Keysight Technologies ($28.0B, Tech, Scientific & Technical Instruments)
Question: “I’m wondering if you can help frame any conversations, any sizing in terms of potential risk from those in terms of just government efficiency and what’s been going on in DC with the new administration on your business.”
Answer: “With regard to the aerospace and defense, I would say that many of our customers continue to believe that the programs that are already in their backlog from our prime contractor customers is at record levels and there’s unlikely to be a big change to that picture. So, those things that are already in flight likely to continue on, and that’s a pretty big at a record level. So that’s number one. Number two, you look at the global picture in Europe and Asia and you start to see a scenario which is likely to emerge where given the geopolitical realities, their defense spending as a percentage of GDP is likely to go up. As a matter of fact, if you just watched today, the UK confirmed taking up their defense spending just yesterday as well. So, I think that’s likely to be the trend. And given our technology and the capabilities, I think we’ll continue to be in a good position to capitalize on those opportunities. With regard to the direct government spending, the only RDT&E line item is something that we’re watching for. But it’s unlikely that we see a scenario where there is a significant cut to technology advancement with regard to security and defense. But that’s our base case, thinking that sort of what our customers are telling us as well. But no one really knows until these things play out. So, we’re continuing to monitor that.”
Immigration
Lastly, another hot-button topic prompted by actions out of the new Administration has been the impact of stricter immigration enforcement on labor and availability across certain industries.
Mentions are predominantly stemming from the Industrial (30%), Financial (19%), REIT (18%), and Consumer Discretionary (15%) sectors. Investment community questions center around the ramifications of stricter immigration policies, especially in sectors heavily dependent on immigrant workers, labor availability, associated costs, and guidance.
Immigration: Selected Examples of Common Analyst Questions
Jan. 27 – AT&T ($191.8B, Communications, Telecom Services)
Question: “On immigration, if you could comment on the sensitivity of your postpaid phone business to potential major changes in immigration statistics over the next couple of years after the change in the Administration.”
Answer: “On immigration, relative to the industry, we’re a bit less sensitive to it, because we maybe don’t play as effectively as I’d like in that part of the market or had what I would think should be more of our fair share. The good news is, if there is a downward trend on it, we’ll be less impacted. It doesn’t mean that I wouldn’t like to be more effective in that space. But, we just aren’t quite as well distributed in that segment of the market as maybe some other folks are. Now, in aggregate, do I think that having more people living in the United States is good for a business like ours? I think, the answer is, yes, because we like economic growth in this country, and part of what we all want to see is that the economy continues to grow and services continue to be invested in. And I think a key element to that is, we have to have the right immigration policies. And hopefully, the wise minds prevail, and that’s what takes place and we’ll see what happens.”
Feb. 20 – Builders FirstSource ($16.2B, Industrials, Building Products & Equipment)
Question: “The new Administration has been vocal about their stance on potential tariffs and labor and immigration policy…if we were to get labor pressures in the construction industry, what do you think would be the repercussions for BLDR and builders’ willingness to use value-added content and your install services?”
Answer: “One of the things Builders FirstSource has done better than anybody else is leaning into this idea of offering value-added products, which is essentially just finding ways to take skilled labor off the job site. We have a great portfolio of products that do that we think will be advantaged. If immigration were to tighten an already tight labor market in that skilled area, we think will be more advantaged than anyone else. The downside is we still think, net-net, any severe impact or radical impact on the labor force would be bad for the industry and bad for affordability, which is bad for starts, and we don’t like it. So, we think the trend is there, we think we’re ready, we think we’re going to win, but we sure hope that there is some thoughtfulness around how it’s executed in the market, both in tariffs and in immigration.”
Feb. 25 – The Home Depot ($389.2B, Consumer Cyclical, Home Improvement Retail)
Question: “There’s been a lot of focus on the impact that the government efficiency measures, and/or immigration policy implementation could have on the U.S. consumer. How did you factor that in those considerations into the guidance?”
Answer: “I don’t think we’ve seen anything specifically. We’ve talked about having a shortage of skilled-trades folks in this country for some time. We believe it’s like 400,000-odd trades folks short, and not sure how that number would change with any meaningful change in immigration. And then specifically to the government efficiency in Mid-Atlantic, no, we’ve not seen anything there.”
Recommendations for Investor Communications amid President Trump’s Policy Announcements
Develop a [Brief] Tariff Positioning Statement for Use in Prepared Remarks; Avoid Being Overly Prescriptive at This Point but Prepare to Provide Increased Transparency:
- Develop bullets to position your message, leveraging ‘Trump 1.0’ tactics as the basis. These demonstrate how previously implemented mitigation strategies have successfully minimized risks while the historical context reassures investors about your company’s proactive stance and lessons learned.
- Further, highlight investments and adjustments made to your supply chain to enhance flexibility and reduce dependency on vulnerable areas (e.g., China, Canada, Mexico, and now the EU). If steps have already been taken, clearly articulate these changes and their benefits.
- Finally, remember, transparency is key, and what investors don’t know they will assume. If you have minimal or no exposure, make this explicitly clear to prevent misunderstandings.
- Lastly, as the U.S. tariff posture becomes clearer over the next several weeks and months, run the impacts to guidance and assumptions. If the resulting actual impact becomes material, consider whether an updated outlook needs to be communicated ahead of the next earnings period.
As an investor communication expert, we are here to serve as a sounding board and strategist in helping you navigate this fluid and dynamic situation to effectively communicate with the Street, manage risk, and build management credibility.
Best-in-Class Communication Examples from President Trump 1.0
Oct. 22, 2019, Q3’19 Earnings Call – Polaris ($2.5B, Consumer Cyclical, Recreational Vehicles)
“Our approach to tariffs has always involved equal aggressive pursuit of two approaches: mitigation and relief. For the former, we use our talented sourcing and logistics teams to prudently move parts out of China, negotiate with suppliers to limit impact, manage the country of origin to our favor, and implement about 60 other mitigation initiatives. These efforts have been quite successful, and despite escalated tariff rates, allowing us to again reduce the expected full-year impact by $5M. Our relief approach is focused on educating and informing the Administration about the significant and disparate impact that Polaris and our employees suffer from 301 tariffs because of our heavy investment in U.S. manufacturing. This message has always been well-received, and we clearly see that the Administration is committed to righting the trade imbalance with China and protecting American workers. Their support for Polaris’ investment in America has culminated in assurance that our 301 exclusion requests are being processed and strongly considered. This takes time, but we expect to see our relief request adjudicated in the near future.”
April 20, 2018, Q1’18 Earnings Call – Stanley Black & Decker ($13.2B, Industrials, Tools & Accessories)
“First, I will address steel and aluminum tariffs under Section 232, which is included in our guidance released this morning. We now expect an annual impact from these tariffs of less than $3M. This impact has been reduced from our previous comments on this topic, as the country exclusions from Canada and Europe mitigated a majority of this potential impact; good news on that front. As we look at our exposure for the initial $50B of tariffs imposed under Section 301, we estimate a maximum annual headwind of approximately $40M to $50M, if implemented. These tariffs could potentially impact componentry and some finished goods imported to support the U.S. market. However, there is significant uncertainty as to how this will play out. But at this stage, we believe these risks are at a manageable level for our company. We believe there are several mitigating factors which could reduce this exposure to $10M to $30M annually, including proactively reviewing our global supply base to identify actions that could lower cost as well as taking priced actions, clearly a number that we believe is manageable in our company’s size. Please note that any impact related to the first $50B in Section 301 tariffs is not included in our guidance, given the uncertain nature of these tariffs and whether they even will occur.”
Emphasize Strength of Relationship with Government Entities and Provide Case Study Examples:
- Be prepared to address questions about your company’s impact from these changes or lack thereof. If applicable, highlight robust partnerships with government agencies, underscoring how these collaborations contribute to mutual goals of efficiency and reform, and underscore the strength of existing contracts.
- Where applicable, provide case studies that illustrate the effectiveness of these partnerships, showcasing significant gains in operational efficiencies, cost savings, and/or policy enhancements.
Jan. 22, 2025, FYQ2’25 Earnings Presentation – CACI International ($7.8B, Tech, Information Tech Services)
Feb. 20, 2025, Q4’24 Earnings Presentation – NV5 Global ($1.2B, Industrials, Engineering & Construction)
Be Prepared to Highlight Labor Flexibility amid Immigration Policy Impacts on Workforce Availability:
- For those with exposure, be prepared to discuss historical resilience in handling labor shortages, the potential regional limitations of these impacts, and proactive strategies like diversifying labor sources and advancing automation to reduce dependency on any single workforce group.
- This remains an incredibly fluid situation, so forecasting impacts may prove difficult.
- That said, if your company has already implemented measures to adapt, clearly articulate these actions and their benefits to remain transparent with the investment community.
Jan. 30, 2025, Q4’24 Earnings Call – PulteGroup ($20.7B, Consumer Discretionary, Residential Construction)
“It’s been a long-standing policy of our company that all of our trade partners and the labor that are on our job sites, we require verified residency status and/or work permits that allow them to work legally in the U.S. That’s been our position for a long time. It’ll continue to be our position. In terms of the impacts to the broader labor force, even beyond just construction labor, the extent that there are deportation activities, there’s no question there’ll be less labor available. And that will have an impact on all wage rates, and we’ll certainly have to deal with that as that becomes more clear.”
4. Capital Allocation
Cash Deployment Trends Reveal Dividends En Vogue Alongside Continued Positive Capex Momentum; Conversely, Buybacks Pulled Back and M&A Activity Ebbed QoQ with Tepid Trends to Start the Year
On a QoQ and YoY basis, S&P 500 dividends were solidly higher, up 12% and 14%, respectively, while capex also saw increases of 9% QoQ and 11% YoY. A closer look at capex reveals QoQ spending increases across all sectors, with the largest median increases observed in Industrials, Healthcare, Consumer Discretionary, Communications, and Energy. According to our latest Q4’24 Inside The Buy-Side® Earnings Primer® survey, investor sentiment toward growth capex remains highly supportive, with nearly all participants (98%) favoring either maintaining or increasing current investment levels.
Notably, M&A saw the largest declines, down 20% QoQ and 67% YoY, a big reversal from the solid increases posted in the prior quarter. Driving the large YoY decrease was a tough comparison as 2023 saw a flurry of large deals at the outset of Q4. That said, a closer look at U.S. merger data suggests the deal environment remained somewhat tepid in January, with values up 8% MoM but volumes little changed. On a YoY basis, January deal values and volumes were down 6.5% and 22.6%, respectively. Time will tell whether this simply reflects buyers on hold in anticipation of a more favorable regulatory climate under the new U.S. Administration or if ongoing policy uncertainty will continue to dampen deal activity.
In Closing
As we wrap up our coverage of Q4’24 earnings season, it’s clear that despite the spurts of market volatility induced by policy uncertainty, companies have continued to put together solid earnings results. However, with positive revenue surprises falling short of the five-year average for the S&P 500, the key question for upcoming quarters centers on whether demand trends will continue to accelerate, as many have projected with back-half strength built into annual guides, especially with an investment community increasingly focused on growth.
While predicting the exact timing of a significant demand shift remains elusive for executives, there are proactive measures you can take to reassure investors. By taking control of your narrative and clearly communicating the strategies you are implementing to navigate current challenges — always with transparency and candor — you can enhance investor support in your investment thesis and right to win, regardless of the backdrop. As I always say, “Don’t own the macro”!
We’ll be off next week, returning the following week with our timely, groundbreaking research on how to Actively Influence Your Valuation with Strategic Investor Communications — stay tuned!
- Combines actual reported results for companies and estimated results for companies yet to report
- Source: LSEG I/B/E/S (Formerly Refinitiv)
- Of note, Amazon is the largest contributor to earnings growth for the Consumer Discretionary sector. If this company were excluded, the blended earnings growth rate for the Consumer Discretionary sector would fall to 4.6%.
- As of February 26, 2025
- Based on company guidance provided at the time of publication; total number of companies differ across revenue and EPS
- As of February 26, 2025; “All Sectors” figures are equal weighted sector averages