The industrial-focused names in the CNBC Investing Club’s portfolio had a solid earnings season, but their stocks did not see significant gains. Toolmaker Stanley Black & Decker and industrial gas giant Linde saw their stocks tumble after their fiscal results, while specialty chemical maker DuPont hit multi-year highs after delivering top and bottom line beats. Electrical components giant Eaton also posted strong results but saw its stock decline undeservedly. Honeywell, on the other hand, faced pressure on earnings day due to softer guidance. Despite the initial stock moves, themes of artificial intelligence, destocking, and pricing emerged as reasons for optimism.
Investments in artificial intelligence were a welcome development for companies like Eaton, DuPont, and Linde. Eaton’s success in its Electrical Americas division was attributed to increased spending on building and retrofitting data centers for AI workloads, leading to high demand for its power management systems. DuPont highlighted the growth potential in its Electronics & Industrials division, driven by AI demand and data center growth. Linde’s CEO mentioned that surging demand for data centers and AI chips would drive volumes in the back half of the year for its electronics business, which accounts for 10% of its portfolio.
Destocking, or reducing excess inventory, was important for companies like Stanley Black & Decker, DuPont, and Honeywell. Supply chain disruptions and softening consumer demand had led to high inventory levels in recent years. Stanley Black & Decker saw improvements in gross margins in the first quarter due to the normalization of supply chains and easing destocking costs. DuPont overcame destocking headwinds and experienced an increase in orders, leading to a share price surge. Honeywell’s short-cycle business also saw improvements as the effects of destocking faded.
Pricing was another important factor for companies like Linde and Stanley Black & Decker. While Stanley Black & Decker’s pricing for its Tools & Outdoor segment remained flat, this was seen as a positive sign as it indicated that management was not lowering prices to boost demand. Linde and Stanley Black & Decker emphasized the importance of pricing as a key lever for driving sales growth. Linde CFO Matthew White highlighted the positive contribution of pricing to underlying sales growth, while also mentioning other growth opportunities in the pipeline.
Overall, the CNBC Investing Club remained optimistic about the prospects of the industrial-focused names in their portfolio despite the initial stock reactions to earnings. The focus on artificial intelligence investments, destocking efforts, and effective pricing strategies pointed towards future growth potential for companies like Eaton, DuPont, Linde, Stanley Black & Decker, and Honeywell. The Club’s decision to add to their positions in companies like Stanley Black & Decker and Linde, and raise their price targets for DuPont reflected their confidence in the long-term prospects of these industrial companies.
