The Q1 earnings season has kicked off on an impressive note, with total earnings for the 24 S&P 500 members that have released results so far, surging 39.3% year over year on 11.7% higher revenues, per the latest Earnings Trends report. Notably, overall earnings for all the S&P 500 companies are expected to be up 16.
6% on 7.5% growth in revenues this season, highlighting the highest quarterly earnings growth rate in the last seven years.Industrial Sector on Growth Path
The Industrial Productssector, currently placed at the top 6% out of the 16 Zacks sectors, is one of the sectors which are expected to record double-digit earnings growth, mainly driven by the U.S. tax reform. According to our latest numbers, the sector’s earnings are on track to be up 24.1% in the quarter compared with last year.
The Industrial Products sector, which was affected by soft commodity prices, reduced investment in the energy sector, dismal economic conditions in some developed and developing nations in the last few years, regained its ground last year. The turnaround in its performance is chiefly backed by increased infrastructure spending and other growth-friendly policies of the new administration. Rise in manufacturing and mining activity also played a crucial role.
Driving Factors for the Sector in Q1
Industrial production is one of the leading economic indicators for industrial stocks. U.S. industrial production inched up 0.5% in March. Further, U.S. housing starts rose 1.9% in the month led by rebound in construction of multi-family housing units.
Also, the U.S Architecture Billings Index (ABI), an economic indicator that provides an approximately nine-to-12 month glimpse into the future of non-residential construction spending activity, was 52 in February. Any score more than 50 indicates billings growth and reflects a healthy business environment.
However, the latest report of the Institute for Supply Management (ISM) stated that the Purchasing Managers Index (PMI) edged down 1.5% to 59.3% in March from February. This indicates the likely surge in raw material costs, as well as fear among manufacturers about the impact of steel and aluminum import tariffs imposed by Trump last month. U.S.-China trade tensions haven't allayed as Trump seeks an added tariff of $100 billion on China products in addition to the already-proposed $50 billion.
It will be interesting to see how some of the industrial stocks fare when the companies release first-quarter 2018 numbers on Apr 19.
Our Picks
W.W. Grainger, Inc. GWWwill report results before the opening bell. The company has an Earnings ESPof -1.73% as the Most Accurate estimate is $3.33, while the Zacks Consensus Estimate is pegged at $3.39. The company carries a favorable Zacks Rank #2 (Buy), but its negative ESP makes surprise prediction difficult. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Over the preceding four quarters, Grainger beat estimates in three occasions and missed in the other, delivering an average positive surprise of 12%. The company is expected to benefit from pricing initiatives, digital-marketing strategies and efforts to bring its Canadian business back to profitability. However, elevated expenses and fluctuation in oil and gas prices are likely to affect results. (Read more: What's in the Offing for Grainger (GWW) in Q1 Earnings?).