Second-quarter 2020 earnings for the Industrial Products sector are expected to decline 49.2%, and revenues and margins are projected to drop 18% and 4.4%, respectively, on a year-over-year basis. Notably, the persistent weakness in global industrial production along with the weakened demand environment, owing to the coronavirus outbreak-led market downturn, is anticipated to have affected the sector’s performance in the quarter under review. The earnings decline is outstretched to other sectors as well, with 15 of the 16 Zacks sectors anticipated to record declines this earnings season.

Key Factors for Industrial Stocks

Per the latest report published by the Federal Reserve on Jul 15, the U.S. industrial production moved up 1.4% and 5.4% (on a month-over-month basis) in May and June, respectively, while it dropped 12.7% in April. Even considering the recovery in May and June, the index declined at an annual rate of 42.6% in the second quarter, marking its biggest quarterly fall since the retrenchment of the industrial sector post World War II.

Also, per the latest Manufacturing ISM Report, the Purchasing Managers’ Index (“PMI”) for April and May 2020 came in at 41.5% and 43.1%, respectively. Notably, any PMI reading below 50 indicates the contraction of manufacturing activities. However, the metric recovered to 52.6% in June (reflecting expansion). The metric suggests that the pandemic and energy market volatility have significantly affected the sector in the first couple of months (April and May) of the second quarter.

For instance, a low demand environment, temporary operational shutdowns for several companies across the country and supply-chain disruptions are expected to have affected the Industrial Products sector. In addition, the uncertain demand environment created by the trade tariffs is anticipated to have hurt the profits of manufacturing companies in the quarter.

Moreover, high costs and operating expenses, and unfavorable movements in foreign currencies are likely to get reflected in the results of many industrial companies in the second quarter.

However, several players from the sector, which are engaged in packaging for medicine and producing materials for personal protective equipment, are expected to have gained from the surge in demand. In addition, several cost-control measures adopted by companies, including the reduction of discretionary expenses, eliminating unnecessary investments and re-prioritization of capital expenditure, are anticipated to have helped maintain a healthy margin performance amid the crisis.

It will be interesting to see how some of the industrial companies fare when they release quarterly financial numbers on Jul 30.

Stanley Black Decker, Inc. (SWK Quick QuoteSWK - Free Report) will release second-quarter 2020 results, before market open. It delivered better-than-expected results in each of the last four quarters. Earnings surprise for the period was 4.22%, on average.

Our proven model provides some idea about stocks that are about to release earnings results. Per the model, a stock needs a combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for a likely earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Presently, the company has an Earnings ESP of +19.37%, as the Most Accurate Estimate is pegged at $1.51, higher than the Zacks Consensus Estimate of $1.27. Also, it has a Zacks Rank #3, which when combined with a positive ESP, makes us confident of an earnings beat.

The company is likely to have benefitted from favorable e-commerce trends, buyouts, efforts to innovate products, supply-chain initiatives and certain cost-reduction measures amid the coronavirus-led market downturn. (Read more: What's in Store for Stanley Black & Decker Q2 Earnings?)

Over the past 60 days, the Zacks Consensus Estimate for its second-quarter earnings has been raised from 48 cents to $1.27.

Xylem Inc. (XYL Quick QuoteXYL - Free Report) will report results for the second quarter, before market open. The company delivered weaker-than-expected results in one of the trailing four quarters, while recording in-line results in the others. Earnings surprise was a negative 9.46%, on average.

Currently, the company has a Zacks Rank #3 and an Earnings ESP of +21.09%, as the Most Accurate Estimate is pegged at 39 cents, higher than the Zacks Consensus Estimate of 32 cents. This makes us confident of an earnings beat.

The company’s performance is expected to have been affected by the weak end markets due to the coronavirus outbreak. However, benefits from its diversified business structure, solid product offerings and contract wins in both emerging and developed nations might have been beneficial. (Read more: Xylem to Report Q2 Earnings: What's in the Cards?)

Over the past 60 days, the Zacks Consensus Estimate for second-quarter earnings has gone up from 4 cents to 32 cents.

AGCO Corporation (AGCO Quick QuoteAGCO - Free Report) is expected to release second-quarter results, before market open. In the past four quarters, the company recorded better-than-expected results thrice and missed once. Earnings surprise for the period was 41.73%, on average.

The company currently sports a Zacks Rank #1. It has an Earnings ESP of -3.62%, as the Most Accurate Estimate is pegged at 6 cents, lower than the Zacks Consensus Estimate of 7 cents.

Improved farm income, stabilization of the U.S farm sector, and increasing replacement demand for parts and services are expected to have aided its performance. Strength in its grain and protein business is also expected to have aided.

Over the past 60 days, the Zacks Consensus Estimate for its quarterly earnings has increased from 3 cents to 7 cents.

Flowserve Corporation (FLS Quick QuoteFLS - Free Report) will release second-quarter 2020 results, after market close. The company surpassed estimates thrice and missed once in the last four quarters. Earnings surprise for the period was a negative 9.00%, on average.

Currently, the company has a Zacks Rank #2 and an Earnings ESP of -1.72%.

Its performance is expected to have benefitted from strength in the thermal solar market and broad technical services offering along with its focus on enhancing sales process and further leveraging on the supplier relationships. (Read more: Flowserve to Report Q2 Earnings: What's in the Cards?)

Over the past 60 days, the Zacks Consensus Estimate for second-quarter earnings has been unchanged at 29 cents.

Terex Corporation (TEX Quick QuoteTEX - Free Report) is expected to release second-quarter results after market close. The company delivered a negative earnings surprise of 244.39%, on average, in the trailing four quarters, missing estimates thrice and beating once.

It currently has a Zacks Rank #3. The company has an Earnings ESP of -20.57%.

Overall slowdown in industrial equipment demand and cautious spending at customers’ end are expected to have affected its performance during the quarter. However, its cost-saving actions might have been beneficial.

Over the past 60 days, the Zacks Consensus Estimate for its quarterly earnings has been changed from a loss of 43 cents to a loss of 56 cents.

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