Preliminary Earnings Spotlight: Watching Three Cyclicals Ahead of the Q3 Reporting Season
Earnings season is on the way. Amid a busy calendar of Analyst Days, the big banks kickstart the reporting period on October 11, and we are already hearing from some firms about how the third quarter progressed. Comps are broadly tougher this go-around, though, as the expected annual EPS growth rate for the S&P 500 is seen under 5% - that is a significant dip from Q2's stout 11.3% year-on-year increase.[1] What will also make the upcoming earnings season tricky is that estimates really ramp up into year-end; Q4's forecast EPS growth rate is 15%, and that's very close to the bar currently being set for all of 2025.[2]
Will corporate America deliver? There are certainly some macro tailwinds at play, including a weaker US dollar, lower interest rates, and still-solid consumer spending trends. Margins will be closely watched along with guidance for the balance of 2024 and full-year 2025.
Among the many possible Q4 themes is whether the broadening rally will persist. Recall that many semiconductor stocks peaked in the first half of July, resulting in a generally smooth hand-off to other industries. By late September, sectors such as Utilities, Materials, and Industrials were at or near all-time highs while Information Technology and Consumer Discretionary remained under their respective 2024 peaks.
This week, we spotted three companies with recent preliminary earnings announcements that could shed light on the cyclical trade. Dow (NYSE:DOW), Nucor (NYSE:NUE), and Corning (NYSE:GLW) each pre-announced Q3 results in September. The trio reports full quarterly earnings later this month. There were mixed messages from the trio of blue-chip companies, perhaps underscoring some uncertainty spiced with optimism regarding the macroeconomic outlook. Let's dive into the numbers.
Dow September 12, 2024
Dow provided an update to its Q3 2024 earnings guidance in mid-September. The company expects revenue for the quarter just ended to be approximately $10.6 billion with operating EBITDA of $1.3 billion.[3] The numbers were seen lighter than what Wall Street hoped for but shares of the Michigan-based Commodity Chemicals-industry company were only modestly lower in the session that followed.
"The updated third quarter outlook is largely driven by a significant unplanned event that occurred in late July at one of our ethylene crackers in Texas. In addition, we are currently experiencing higher input costs and margin compression in Europe. These headwinds are partially offset by improved North America pricing and feedstock costs in Packaging & Specialty Plastics," said Jim Fitterling, chair and CEO.[4]
The CEO was somewhat optimistic about Q4, however, noting that there may be a positive impact from lower turnaround costs and higher operating rates as it ramps up its Texas cracker. Shares of the $38 billion market cap Materials-sector company remain more than 10% off their April high, but the stock has largely trodden water since June.
Looking ahead, according to Wall Street Horizon data, Dow's management team is slated to present at The Battery Show North America 2024 conference in Detroit from October 7 to 10 before its confirmed Q3 earnings date of Thursday, October 24 BMO.
Nucor September 17, 2024
Less than a week later, Nucor, also from the Materials sector, relayed a soft outlook to the street. Its Q3 EPS guidance is now seen in the $0.87 to $0.97 range. When including certain one-time non-cash charges totaling approximately $0.43 per diluted share, the normalized EPS range is likely to come in between $1.30 and $1.40, per the preliminary. Price volatility in the steel industry and resulting impairment charges are cited as the culprits for a year-on-year profit decline. Additionally, lower average selling prices and volumes in both its steel mills and steel products categories weighed on earnings.[5]
Nucor routinely provides preliminary earnings before its full quarterly update. Moreover, it warned back in July that Q3 would be challenging, stating that we expect earnings in the third quarter of 2024 to decrease compared to the second quarter of 2024. The largest driver for the expected decrease in earnings in the third quarter of 2024 is the expected decrease in earnings of the steel mills segment, primarily due to lower average selling prices.[6]
Uncertainty remains high regarding the election outcome in the US and to what extent recent stimulus measures out of China could have on the global steel industry; the $36 billion market cap stock remains down about 25% from its year-to-date peak. Be sure to tune in for clues when it reports full Q3 numbers on Monday, October 24 AMC.
Corning September 19, 2024
Measured expectations was the theme between the Dow and Nucor preliminaries, but a more upbeat tone was voiced by Corning within its Q3 update.
I'm very pleased with the progress we have made on our Springboard' plan to add more than $3 billion in annualized sales by 2026. The plan leads to an improving return profile, with profits growing significantly faster than sales. Today, we are sharing our Springboard operating-margin target of 20% by the end of 2026, said Wendell P. Weeks, chair and CEO.[7]
Ed Schlesinger, executive VP and CFO, added, Our second-quarter results and third-quarter guidance put us well ahead of our Springboard' plan run rate. In the third quarter, we continue to expect sales of $3.7 billion and EPS of $0.50 to $0.54.
Perhaps an AI beneficiary, shares of the $38 billion market cap Electronic Components-industry company added to its 2024 gain last month. Even with some cost pressures noted in the preannouncement, its ability to push through price increases and drive margins across segments is a theme among some AI-related companies. By late September, GLW was back near its July high of $46 after a more than 20% decline, peak to trough, during the first half of Q3.
Corning's Q3 report is unconfirmed to be released on Tuesday, October 29 BMO.
The Bottom Line
Preliminary earnings reports are often used by companies to level set before full-quarter earnings results are issued. Piecing together what firms from diverse industries signal can help form a mosaic about the state of the economy - it's clear that there are both headwinds and tailwinds in cyclical sectors. We'll know more in just a few short weeks.
1 Earnings Insight, FactSet, John Butters, September 20, 2024, https://advantage.factset.com2 Earnings Insight, FactSet, John Butters, September 20, 2024, https://advantage.factset.com3 Dow Provides Update on Third Quarter 2024 Earnings Guidance, Dow Inc., September 12, 2024, https://corporate.dow.com4 Dow Provides Update on Third Quarter 2024 Earnings Guidance, Dow Inc., September 12, 2024, https://corporate.dow.com5 Nucor Announces Guidance for the Third Quarter of 2024 Earnings, Nucor Corporation, September 17, 2024, https://nucor.com6 Nucor Reports Results for the Second Quarter of 2024, Nucor Corporation, July 22, 2024, https://nucor.com7 Corning Provides Update on Key Milestones in Springboard' Plan to Add More Than $3 Billion in Annualized Sales, and Shares Operating-Margin Target of 20% by End of 2026, Corning Incorporated, September 19, 2024, https://www.corning.com
?Copyright 2024 Wall Street Horizon, Inc. All rights reserved. Do not copy, distribute, sell or modify this document without Wall Street Horizon's prior written consent. This information is provided for information purposes only. Neither TMX Group Limited nor any of its affiliated companies guarantees the completeness of the information contained in this publication, and we are not responsible for any errors or omissions in or your use of, or reliance on, the information. This publication is not intended to provide legal, accounting, tax, investment, financial or other advice and should not be relied upon for such advice. The information provided is not an invitation to purchase securities, including any listed on Toronto Stock Exchange and/or TSX Venture Exchange. TMX Group and its affiliated companies do not endorse or recommend any securities referenced in this publication. TMX, the TMX design, TMX Group, Toronto Stock Exchange, TSX, and TSX Venture Exchange are the trademarks of TSX Inc. and are used under license. Wall Street Horizon is the trademark of Wall Street Horizon, Inc. All other trademarks used in this publication are the property of their respective owners.
This article first appeared on GuruFocus.