Cautiously Optimistic Investor Sentiment Prevails as Intact Secular Growth Trends and Constructive Views on Order Rates Support Firm Setup in 2026; Policy Impact Serves as a Governor
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Survey Finds Investor Headiness for Growth Persists with Expectations Intact for 2026 Expansion; Frothy Valuations, Policy Impact, Geopolitics, and AI Bubble Curb Enthusiasm Somewhat
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This Week in Earnings – Q2'23
Industrials in our Sector Beat
- With 51% of the S&P 500 reporting earnings to date, 62% have reported a positive revenue surprise, below the 1-year average of 71%.
- Companies are reporting revenue 1.5% above consensus estimates, and slightly below the 1-year average (+2.5%) and above the 5-year average (+2.0%). Continuing, 79% have reported a positive EPS surprise, above the 1-year average of 73%.
- Companies are reporting earnings 6.6% above consensus estimates, well above the 1-year average of (+3.2%) but below the 5-year average (+8.4%).
We analyzed annual revenue and EPS guidance provided by 30 industrial companies with market caps greater than $500M that have reported to date.
Industrials are seeing a greater number of companies raising guidance across both revenue and EPS, with slightly fewer maintaining than the all-company benchmark. Consistent with the broader universe, few are lowering guidance at this time — a clear reflection of executives’ conservative 2023 projections introduced earlier in the year:
- EPS: 79% raised, 14% maintained, 7% lowered
- Revenue: 54% raised, 23% maintained, 23% lowered
Further, we analyzed the earnings calls for this group and the broader industrial universe to identify key themes:
- Macro Outlook: Despite Continued Near-term Economic Uncertainty, Executives Reinforce Cautious Optimism About the Back Half of 2023 as Conditions “Stabilize”; A Resilient Consumer Continues to Boost Sentiment
- Backlog & Order Rates: An Improved Operational Environment Results in Streamlined Lead Times for Many; Book-to-Bill Ratios are Normalizing (ex-Aerospace and Defense, Where Companies Continue to See Supply Constraints)
- Margins: Expense Management and Moderating Input Costs Support Margin Preservation; Continued Pricing Power is Being Called into Question
- Capital Allocation: M&A ≠ Deal Drought Continues as Buyers Cite Strict Lending Conditions and High Valuations, Though Funnel is Improving from Less Competition for Assets
- Secular Trends: Government Stimulus “Displaying Quantifiable Progress” as Incentive Programs Work Their Way Through the System and Boost Re/Onshoring Efforts
- Regional Spotlight: China – A Reversal from Last Quarter, Companies are Downplaying Their China Exposure as Limited Demand Pressures Pricing, with Some Moving Manufacturing Elsewhere
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