The third-quarter 2024 earnings season has just begun for the Zacks Industrial Products sector. The handful of companies that have released earnings so far have reported positive results. Till Oct. 16, 3.8% of the S&P 500 companies within the Industrial Products sector reported results, beating earnings and revenue estimates.

However, persistent softness in the manufacturing sector is anticipated to have weighed on the sector’s third-quarter performance. The latest Earnings Trend report indicates a year-over-year decline in both earnings and revenues for the S&P 500 companies within the Industrial Products sector. Per the report, the sector’s third-quarter earnings are anticipated to witness a decline of 7.6% compared with a 1.6% decrease recorded in the previous quarter. Revenues for the sector are also projected to fall 3.3% year over year compared with a 2.1% decrease reported in the second quarter.

Below, we have discussed industrial companies like Zebra Technologies (ZBRA Quick QuoteZBRA - Free Report) , Eaton Corporation plc (ETN Quick QuoteETN - Free Report) , Ingersoll Rand (IR Quick QuoteIR - Free Report) and Xylem Inc. (XYL Quick QuoteXYL - Free Report) that are set to trump earnings estimates this reporting cycle.

Factors at Play During the Quarter

The Industrial Product sector has been grappling with persistent softness in the manufacturing sector. Per the Institute for Supply Management report, the Manufacturing PMI (Purchasing Manager’s Index) was 47.2% in September 2024, matching the figure recorded in August. A figure less than 50% indicates a contraction in manufacturing activity. September marked the sixth consecutive month of contraction for the manufacturing sector.

Also, the New Orders Index remained in the contraction territory for the sixth consecutive month, registering 46.1% in September. The third quarter of the year registered a continued slowdown in orders compared with the beginning of the year, with weaker-than-expected readings in the manufacturing sector.

Nevertheless, companies with exposure to the aerospace end market have been benefiting from strong commercial aftermarket demand, driven by continued recovery in commercial flight hours. Also, resiliency in the nondurables, business supplies, food & beverage and defense end markets is likely to boost the Industrial Sector’s results.

Several industrial companies have resorted to digitizing their business operations with the latest technologies and business models. This has enabled the sector’s participants to enhance their competitiveness with higher productivity and product quality. Also, growth in the e-commerce space is likely to have driven the sector’s performance.

The benefits of improving supply chains, pricing actions and cost-control initiatives are expected to be reflected in the sector’s third-quarter results.

How to Pick Winners?

Given the large number of players operating in the industrial products space, picking the right stocks is not an easy task. Our proven model, however, 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 uncover the best stocks 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 combination, the chances of a beat are as high as 70%.

Our Choices

Zebra Technologies has an Earnings ESP of +2.01% and a Zacks Rank of 3 at present. The company is scheduled to release third-quarter 2024 earnings on Oct. 29. The Zacks Consensus Estimate for ZBRA’s earnings is pegged at $3.24 per share, indicating a 272.4% year-over-year increase. The company has a four-quarter trailing average earnings surprise of 11.9%.

Zebra Technologies’ third-quarter performance is expected to have gained from strength in the Enterprise Visibility & Mobility segment, driven by higher sales of mobile computing products. Also, the company has been advancing digital capabilities, optimizing the supply chain, expanding its data analytics capability and focusing on marketing activities, which are expected to benefit results. However, weak demand for printing solutions is expected to have been a woe.

Eaton has an Earnings ESP of +0.48% and a Zacks Rank of 2 at present. The company is scheduled to release third-quarter 2024 earnings on Oct. 31. The Zacks Consensus Estimate for ETN’s earnings is pegged at $2.80 per share, indicating a 13.4% year-over-year increase. The company has a four-quarter trailing average earnings surprise of 4.7%.

Eaton’s results are expected to benefit from its research and development work that allows it to develop new products. Rising demand from the new AI data center and contributions from its organic assets have been aiding the company. However, Eaton’s global operations expose it to unpredictable currency translation, which are likely to impact its results .

Ingersoll Rand has an Earnings ESP of +1.22% and a Zacks Rank of 2 at present. The company is scheduled to release third-quarter 2024 earnings on Oct. 31. The Zacks Consensus Estimate for IR’s earnings is pegged at 82 cents per share, indicating 6.5% year-over-year increase. The company has a four-quarter trailing average earnings surpa rise of 11%.

IR’s quarterly performance is likely to have been aided by strength in the Industrial Technologies & Services segment, driven by higher orders across its product portfolio of industrial vacuums and blowers along with stable orders for compressors. Growth in short-cycle orders, along with strong book-and-ship orders, is expected to have benefited the Precision and Science Technologies segment’s performance.

Xylem has an Earnings ESP of +0.06% and a Zacks Rank of 3 at present. The company is scheduled to release third-quarter 2024 earnings on Oct. 31. The Zacks Consensus Estimate for XYL’s earnings is pegged at $1.11 per share, indicating a 12.1% year-over-year increase. The company has a four-quarter trailing average earnings surprise of 6.1%.

Strength in the Measurement & Control Solutions segment, driven by robust demand for advanced technology solutions like smart metering and other applications primarily in the United States, is expected to have benefited the company’s performance. Growth in the transport application business, driven by a strong pipeline of capital projects in Western Europe and increased infrastructure projects in the United States, is likely to have aided the Water Infrastructure segment’s performance. However, weakness in the Applied Water segment, due to a decrease in demand for industrial and buildings solutions applications including pumps and valves, is expected to have impacted the performance of XYL.

Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.