The Zacks Industrial Products sector has been benefiting from strength across several end markets, thanks to continued expansion in manufacturing activities. Cost control measures and pricing actions exercised by sector participants have been supporting their top-line growth. However, supply chain disruptions and raw material cost-inflation are major challenges plaguing the sector participants.
Per the latest Earnings Trends report, the Industrial Products sector’s second-quarter 2022 earnings are anticipated to witness a year-over-year growth of 8.7%, slightly lower than a 9% rise recorded in the first quarter of 2022. The sector’s revenues are projected to increase 10.8% in the second quarter, compared with a 10.6% growth in the first quarter.
Nearly 30% of the companies within the Industrial Products sector have already reported second-quarter earnings numbers, out of which 85.7% beat on both earnings and revenues. Of those that are yet to report, MRC Global MRC, Xylem XYL, Zebra Technologies ZBRA and Eaton Corporation ETN are some of the prominent names.
Q2 Earnings Picture for Yet-to-Report Companies
Continued expansion in manufacturing activities indicates strong demand across end markets, which is likely to have aided the sector participants’ second-quarter performances. Per the Institute for Supply Management’s (“ISM”) latest report, the manufacturing Purchasing Managers Index (PMI) was 53%, 56.1% and 55.4% in June, May and April, respectively. An Index above 50 indicates expansion in manufacturing activities. The Production Index was 54.9% in June, a 0.7-percentage point increase from May’s tally. Industrial production increased at an annual rate of 6.1% for the second quarter, with manufacturing output rising 4.2%.
Strength across end-markets such as gas utilities, industrial, energy transition, defense and battery technology is likely to have aided the second-quarter performances of some industrial companies. Solid backlog levels, cost-control measures, effective pricing and operational execution, may have favored performance in the to-be-reported quarter.
However, supply chain disruptions, labor shortages and raw material cost inflation might have weighed on industrial companies’ second-quarter performances. A stronger U.S. dollar might have also impacted the overseas business performance of these companies. Escalating selling, general and administrative expenses and cost of sales are likely to have hindered the companies’ bottom lines.
How to Pick Winners?
Given the large number of players operating in the transportation space, picking the right stocks is not an easy task. But our proven model makes it fairly simple. One can shortlist with the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold), which increases the odds of an earnings beat. You can see the complete list of today’s Zacks #1 Rank stocks here.
You can uncover the best stocks to buy or sell before they report earnings with our Earnings ESP Filter.
Earnings ESP — the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate — is our proprietary methodology for determining the stocks with maximum chances of delivering positive earnings surprises in their next announcements. Our research shows that for stocks with this perfect combination, the chances of a beat are as high as 70%.
Our Choices
Below we list four industrial stocks that have the right mix of elements to pull off positive surprises this earnings season.
MRC Global has an Earnings ESP of +10.35% and a Zacks Rank #1. MRC is slated to release second-quarter 2022 earnings numbers on Aug 8.
MRC Global ‘s second-quarter performance is likely to have gained from strength in its business in the gas utility sector owing to higher gas distribution system integrity management and new home construction activities. The company’s business in the downstream, industrial and energy transition sectors are likely to have benefited from solid customer activity and project turnaround activity. However, high costs might have hampered margin performance in the to-be-reported quarter.
MRC Global Inc. Price and EPS Surprise
MRC Global Inc. price-eps-surprise | MRC Global Inc. Quote
Xylem has an Earnings ESP of +0.92% and a Zacks Rank #3. XYL is scheduled to release second-quarter 2022 earnings numbers on Aug 2.
Xylem’s second-quarter performance is expected to have benefited from a solid backlog level, effective pricing and focus on operational execution. However, supply chain disruptions and escalating costs might have weighed on the to-be-reported quarter’s performance.
Xylem Inc. Price and EPS Surprise
Xylem Inc. price-eps-surprise | Xylem Inc. Quote
Zebra Technologies has an Earnings ESP of +2.15% and a Zacks Rank #3. The company is slated to announce second-quarter 2022 results on Aug 2.
Robust demand for Zebra Technologies’ task management and prescriptive analytics software solutions, enterprise mobile computing, intelligent automation solutions, data capture, services and software across all regions is likely to have aided the company’s top line in the to-be-reported quarter. However, supply chain challenges and high freight costs might have weighed on performance.
Zebra Technologies Corporation Price and EPS Surprise
Zebra Technologies Corporation price-eps-surprise | Zebra Technologies Corporation Quote
Eaton has an Earnings ESP of +0.04% and a Zacks Rank #3. The is scheduled to release second-quarter 2022 earnings on Aug 2.
Eaton’s second-quarter performance is expected to have benefited from the ongoing improvement in end-market conditions and organic sales growth. Negative currency translation might have partly weighed on the performance.
Eaton Corporation, PLC Price and EPS Surprise
Eaton Corporation, PLC price-eps-surprise | Eaton Corporation, PLC Quote
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