U.S. industrials stare at profit squeeze from excess inventory, weak demand
2022.07.25 19:18
FILE PHOTO: An assembly worker works on 2015 Ford Mustang vehicles on the production line at the Ford Motor Flat Rock Assembly Plant in Flat Rock, Michigan, August 20, 2015. REUTERS/Rebecca Cook
By Aishwarya Nair
(Reuters) – U.S. manufacturers are likely to see a hit to their quarterly profit in the second half of the year as higher prices for everything from light bulbs to air conditioners take a toll on consumer spending.
Wall Street analysts fear the second quarter would be the last three months of a good spell that began during the pandemic as consumers used stimulus checks to buy products of 3M Co, Emerson (NYSE:EMR) Electric Co, Eaton (NYSE:ETN) Corporation Plc and Johnson Controls (NYSE:JCI).
GRAPHIC: Pandemic profits (https://graphics.reuters.com/USA-INDUSTRIALS/lgpdwzebovo/chart.png)
High inventory levels combined with sluggish order growth are likely to hurt manufacturers’ revenue as analysts foresee a further slowdown in demand.
“Electrical orders momentum is likely to slow sharply, which is a risk that is under-appreciated by investors,” brokerage firm Barclays (LON:BARC) said.
THE CONTEXT
The U.S. manufacturing and trade inventories rose 17.7% year-over-year to $2.38 billion in May, the U.S. Census Bureau data showed https:// while the manufacturing activity slowed more than expected in June.
In its latest quarterly report, industrial products maker Dover Corp (NYSE:DOV) said bookings dropped 33% for its unit that serves commercial refrigeration, heating and cooling markets from a year earlier.
“We’ve been guiding for a year now that this can’t go on forever and orders are going to come down,” its Chief Executive Richard Tobin told analysts.
Dover’s peer 3M, which generates 17% of its revenue from the consumer segment, is set to report its results tomorrow.
GRAPHIC: Performance of Industrial stocks (https://graphics.reuters.com/USA-INDUSTRIALS/myvmnlwrwpr/Industrials.PNG)
FUNDAMENTALS
* Analysts estimate 3M’s Q2 revenue to fall 4.2% to $8.57 billion when it reports results on July 26
* Earnings per share is estimated at $2.22
* The stock has lost about 27.4% of its value this year
* For Emerson, analysts estimate Q3 revenue to grow 8.8% to $5.11 billion
* Earnings per share is estimated at $1.06
* The stock has lost about 14.6% of its value this year +
* Eaton’s Q2 revenue is expected to fall 0.19% to $5.21 billion
* Earnings per share is estimated at $1.61
* The stock has lost about 26.6% of its value this year
WALL STREET SENTIMENT
For MMM, 1 out of 23 analysts rate the stock “buy”, while 15 have a “hold” rating and 7 rate the stock “sell” or lower. The median price target is $144.
For EMR, 16 out of 27 analysts rate the stock “buy” or higher, while 11 have a “hold” rating. The median price target is $97.
For ETN,
17 out of 26 analysts rate the stock “buy” or higher, while 8 have a “hold” rating and one “sell” rating. The median price target is $154.
For JCI, 18 out of 24 analysts rate the stock “buy” or higher, while 6 have a “hold” rating. The median price target is $62.
