Earnings

4 Industrial Stocks Set to Top Estimates This Earnings Season

Earnings releases across the Zacks Industrial Products sector are anticipated to mirror the impacts of solid economic fundamentals and the operational challenges created by the pandemic during the October-December quarter of 2021. Despite a solid demand environment and growth in e-commerce activities, supply-chain bottlenecks along with cost inflation and labor issues are likely to have affected the sector’s performance.

Per the latest Earnings Trend report, until Feb 2, the Industrial Products sector witnessed releases from 57.7% of the total companies, with 80% of them surpassing earnings estimates and 73.3% beating revenue estimates. Results reflect a year-over-year increase of 11.8% and 13.3% for earnings and revenues, respectively. The sector declined 5% in the past three months, while the S&P 500 fell 2.9%.

In the October-December quarter, overall earnings for the Industrial Products sector are anticipated to witness year-over-year growth of 3.5%, lower than 32.9% rise recorded in the previous quarter. The sector’s revenues are projected to increase 9.1%, while margins are expected to decline 0.6%. The July-September quarter had witnessed 14.1% revenue growth and a 1.8% margin expansion.

Let us discuss the factors that might have played a key role in shaping the performance of industrial stocks in the quarter under review.

Major Factors to Consider for Industrial Stocks

The industrial companies performed well in the October-December quarter, with a consistent rise in manufacturing activities, supported by impressive growth in domestic and international orders for products and services. Per the Institute for Supply Management’s (“ISM”) report, the Purchasing Managers Index (PMI) registered 60.8%, 60.6% and 58.8% in October, November and December, respectively. Also, ISM’s measure of production in December was 59.4%, an improvement from 59% in October and a slight decline from 60.2% in November. Also, in December, the new orders index was 61%, indicating the 19th consecutive month of increase. It’s worth noting here that in the to-be-reported quarter, the United States’ industrial production recorded an annual increase of 4%, with factory output rising nearly 5%. Also, growth in the e-commerce business is likely to have been tailwinds for the sector.

Growth in demand for products across several end markets, including process automation, residential heating, ventilation and air conditioning and water treatment end markets, is likely to have been a tailwind for some companies. Also, the companies are likely to have benefited from focus on operational execution and effective pricing actions, investments in product innovation and digital initiatives.

However, the lingering impact of the pandemic-led challenges is likely to have weighed on the sector’s performance. Also, shortages in the supply of semiconductor chips and components, inflation in raw material and other costs, along with logistic and labor issues, are expected to have adversely impacted margins and profitability of the sector participants.

4 Stocks Poised for Earnings Beat This Season

Investors looking for options in the sector can select stocks with the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.

Earnings ESP is the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate.

The combination of a favorable ranking and positive ESP increases the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Below we have listed four industrial stocks, with the right combination of elements to post an earnings beat in the October-December quarter:

Deere & Company DE: Based in Moline, IL, the company is currently the world’s largest producer of agricultural equipment. The company is likely to have benefited from an increase in demand for its products across agricultural and construction sectors and acquired assets in the first quarter of fiscal 2022 (ended January 2022). Also, its focus on investing in new products and efforts to expand precision agriculture are likely to have been tailwinds in the quarter.

DE presently carries a Zacks Rank #2 and has an Earnings ESP of +17.33%. The Zacks Consensus Estimate for the to-be-reported quarter has been lowered 2.6% to $2.22 in the past 60 days.

Deere & Company will release its quarterly results on Feb 18, before market opens.

Deere & Company Price and EPS Surprise

Deere & Company Price and EPS Surprise

Deere & Company price-eps-surprise | Deere & Company Quote

Eaton Corporation plc ETN: Headquartered in Dublin, Ireland, Eaton is a diversified power management company and a global technology leader in electrical components and systems. In the fourth quarter, the company is expected to have gained from its diversified product portfolio with a strong market presence, acquisitions and research and development programs. Also, its ability to generate strong cash flow supports its shareholder-friendly moves. However, supply-chain disruptions and cost inflation might have played spoilsport.

ETN presently carries a Zacks Rank #3 and has an Earnings ESP of +0.23%. The Zacks Consensus Estimate for the to-be-reported quarter has been lowered 1.2% to $1.71 in the past 60 days.

Eaton will release its quarterly results on Feb 4, before market opens.

Eaton Corporation plc Price and EPS Surprise

Eaton Corporation, PLC Price and EPS Surprise

Eaton Corporation plc price-eps-surprise | Eaton Corporation plc Quote

Ingersoll Rand Inc. IR: Headquartered in Davidson, NC, the company is a global industrial company with expertise in industrial and mission-critical flow creation technologies. In the fourth quarter, it is likely to have benefited from strength across its medical and dosatron businesses, innovation capabilities, acquired assets and healthy liquidity position. Inflation on logistics and other costs and high growth investments expenses might have played spoilsport.
 
IR currently has a Zacks Rank #3 and an Earnings ESP of +7.44%. The Zacks Consensus Estimate for fourth-quarter earnings has remained stable at 61 cents in the past 60 days.

Ingersoll Rand is expected to release its results on Feb 28.

Ingersoll Rand Inc. Price and EPS Surprise

Ingersoll Rand Inc. Price and EPS Surprise

Ingersoll Rand Inc. price-eps-surprise | Ingersoll Rand Inc. Quote

Sealed Air Corporation SEE: Based in Charlotte, NC, the company is a global leader in food safety and security and product protection. It caters to a diverse set of end markets, including food and beverage processing, food service, retail, healthcare and industrial. Sealed Air is expected to have gained from solid demand for automated equipment and sustainable packaging solutions along with focus on product innovation, investment in automation and acquired assets in the to-be-reported quarter. However, supply chain challenges and higher input costs might have weighed on its margins.

SEE currently has a Zacks Rank #2 and an Earnings ESP of +1.75%. The Zacks Consensus Estimate for fourth-quarter earnings has been stable at $1.14 in the past 60 days.

Sealed Air is expected to release results on Feb 17, before market opens.

Sealed Air Corporation Price and EPS Surprise

Sealed Air Corporation Price and EPS Surprise

Sealed Air Corporation price-eps-surprise | Sealed Air Corporation Quote

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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