What to expect from Apple's Q1 2020 earnings report on January 28
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Apple's holiday quarter financial results will be revealed on Tuesday, with iPhone 11 sales likely to be the biggest topic of interest. Here are what some of the analysts monitoring the iPhone maker expect will be revealed during the filing and following conference call.
During the fourth-quarter results, Apple forecast revenue of between $85.5 billion and $89.5 billion for the first quarter, as well as a gross margin of between 37.5% and 38.5%. Operating expenses for the period are anticipated to be in the range of $9.6 billion to $9.8 billion, while the tax rate was tipped to be approximately 16.5%.
If achieved, this would be a higher revenue than one year prior, which reached $84.3 billion and itself was a decline of 5% year-on-year. During those results, Apple reported iPhone revenue was down 15% year-on-year at $52 billion, with Service revenue up 19% year-on-year to $10.9 billion, Mac revenue up 9% at $7.4 billion, iPad up 17% to $6.7 billion, and the Wearables, Home and Accessories category rose 33% to $7.3 billion.
The one-year-ago quarter was unusual, as Apple preceded it with a warning it was lowering its forecast from an expected range of $89 billion to $93 billion, down to $84 billion. At the time, the reduction was blamed on weak iPhone demand in China and other unspecified emerging markets.
The quarter will be the first full sales period for Apple's current iPhone generation, consisting of the iPhone 11, iPhone 11 Pro, and iPhone 11 Pro Max, along with the Apple Watch Series 5 and the seventh-generation 10.2-inch iPad. Their launches in September meant they only had a small effect on the previous quarter's result, so analysts will be keen to hear of how Apple is doing after three full months of sales.
As the AirPods Pro were released in late October, the audio accessories were only available for two months out of the three, though sales are still likely to make an impact to Apple's Wearables, Home, and Accessories category. Other late arrivals include the 16-inch MacBook Pro, the Mac Pro, and the Pro Display XDR.
However, due to Apple's policy of only providing general revenue figures and not unit counts, analysts will have to make estimates with relation to elements such as product mix and average selling prices. Apple may elect to offer more details about these elements, though
AppleInsider will offer full coverage of the earnings call on Tuesday, January 28, starting at 1:30 p.m. Pacific, 4:30 p.m. Eastern.
Thomson Reuters
Rather than using a dedicated in-house analyst team to create a forecast, Thomson Reuters calculates an average based on the estimates and forecasts of multiple analysts from a variety of firms. In theory, the use of a crowd allows for both a range of forecasts to be used, while also ensuring the outlier versions have less of an effect on the overall average.
Typically, the compilation is a decent indicator of Wall Street expectations.
Based on figures from 31 analysts, the average revenue estimate is $88.43 billion, in a range of $86.75 billion to $91.68 billion. The earnings per share, based on numbers from 34 data points, is thought to be at $4.54, with the range of $4.37 at the low-end and $4.83 on the high.
Cowen
Having recently pushed its price target to $350, Cowen has offered a firm belief in the performance of Services, and a warm reception for the iPhone 11 range. It still believes iPhone sales will decline in 2020, albeit at a low single-digit percentage, offset by relatively stable Services growth and gross margins on hardware.
For the quarter, Apple is seen reporting $88.5 billion in revenue, with a $4.52 EPS. In terms of Apple's forecast for the March quarter, it is speculated to be $63.5 billion in revenue, with an EPS of $2.95.
Bank of America
On Thursday, Bank of America analyst Wamsi Mohan offered a forecast putting holiday quarter revenues at $89 billion, close to the top end of Apple's revenue guidance. The gross margin is thought to remain relatively static at 38.1%.
"This move is justified by the unexpected strong sales of the iPhone 11, which proves Apple's brand loyalty and retention rates and shows that the company can count on a steady stream of phone sales despite major changes in design," wrote Mohan. Meanwhile, Services demonstrates the possibility for stronger growth due to the strength of new services like Apple TV . AirPods are also a strong assistive force for Apple's revenue in the quarter.
The March quarter forecast is tipped to be between $62 billion and $65 billion, with a gross margin climbing to between 38% and 39%, based on an "easy compare" to soft sales in the year-ago quarter.
J.P. Morgan
On Monday, J.P. Morgan's Samik Chatterjee wrote of expectations for a strong quarter, buoyed by the Apple Watch and AirPods sales performance. Chatterjee believes Apple will end up at the higher end of its forecast range, at $88.7 billion for the quarter.
Broken down, the iPhone's revenue is tipped to be $49.7 billion, with iPad and Mac at $7.3 billion apiece, Services at $12.9 billion, and Wearables, Home, and Accessories at $11.6 billion. The gross margin is thought to be at 38%, with Services gross margin alone hitting 64.5%.
Loup Ventures
Gene Munster and Will Thompson of Loup Ventures puts Apple at revenue ahead of consensus at $88.3 billion with a GAAP EPS of $4.53, with revenue up 5% overall, iPhone revenue up 1%, Services up 15%, and wearables up close to 50%. For the March quarter outlook, it is thought to be in line with the Street's $62.3 billion estimate.
The iPhone business will have stabilized in the quarter due to a 3.25-year upgrade cadence, in Loup Ventures' view, with an active install base of 1.5 billion or more devices, up 8% year-on-year. Apple is also slowly diversifying away from iPhone, with 58% of its revenue derived from the smartphone, down from 62% one year prior, and 69% two years ago.
Above Avalon
Neil Cybart's prediction for the Q1 results puts Apple at $89.6 billion in revenue, slightly above Apple's guidance range, with an overall gross revenue of 38%, and an EPS of $4.70. iPhone is anticipated to be flat at $51.9 billion, with Services up 20% year-on-year at $13 billion, Wearables up 55% to $11.3 billion, Mac down 5% to $7 billion, and iPad down 7% at $6.2 billion.
Wearables are "positioned to be the top story" for the earnings in Cybart's opinion, with AirPods, Apple Watch, and accessories being the main growth drivers for the period. The Wearables, Home, and Accessories category is also mused to be the top driver for the company's year-on-year revenue growth by a wide margin, growing $4 billion against Services' $2 billion increase "by a wide margin."
For the second-quarter forecast, Cybart proposes Apple will offer guidance in the range of $57.5 billion to $60.5 billion, down $2 billion in expectation of a revenue hit from the coronavirus in China.
Sundance 2020: 6 Things to Expect From Indie Film Sales Market
Indie distributors and sales agents are expecting a “healthy” market with lots of activity and competition among buyers
One year after Sundance broke records with mega deals and huge bidding wars, indie distributors and sales agents are expecting a “healthy” market with lots of activity and competition among buyers at this year’s film festival.
“Personally, I feel like there is going to be more activity at Sundance than there was at Toronto,” Oliver Wheeler, an agent in the International & Independent Film Department at ICM, told TheWrap. “The new streamers will be active and the ecosystem is healthy for the right content.”
Another sales agent added, “The market continues to be strong, the money is there and the financiers are out there and excited.”
According to several executives, this year’s independent film market is “healthy” and thriving, even with the new influx of countless streamers competing with the traditional distributors. Filmmakers are also embracing new paradigms for distribution, which could lead to new, creative ways deals are made on Park City’s Main Street.
Also Read: 'The Father' Starring Anthony Hopkins and Olivia Colman Acquired by Sony Pictures Classics Ahead of Sundance
Here are six things we can expect from the 2020 Sundance Film Festival sales market:
1. The Ecosystem Is Healthy
Yes, product didn’t sell quite as fast and for as much money at the Toronto International Film Festival in September as many agents had anticipated, with many projects still up for sale four months later. (Those orphaned films include Dakota Johnson and Jason Segel’s “The Friend” and Gale Polsky’s buzzy documentary “Red Penguins.”)
“It’s as healthy, or healthier, than it’s been. From a traditional distributor standpoint, it’s more precarious,” a second sales agent said. “They have to be smart in the way they pick.”
All eyes will be on the multiple streaming services that have launched in the past year — or ones that are close to launch and are filling up their slate. Disney+, HBO Max and Quibi are just a few examples. But also David Glasser’s 101 Studios is hoping to make a splash at its first Sundance. (The company kicked off last fall with its first release, Benedict Cumberbatch’s recut “The Current War” that had been shelved at The Weinstein Company following Harvey Weinstein’s sexual assault scandal.)
Saban Films President Bill Bromiley agreed that the consumer appetite for indies remains strong. “The challenging part is figuring out how to get them seen and being able to monetize it so we can have more money to buy and distribute these movies,” he said. “That’s changing.”
One factor is the box office for some recent indies. Lulu Wang’s “The Farewell,” which sold to A24 for $7 million at last year’s Sundance, was produced for $3 million and has made $19 million worldwide. Bong Joon Ho’s “Parasite,” a Cannes acquisition and Oscar front-runner, had the highest per-screen average of 2019 — $125,421 during its opening weekend — and has since grossed $143 million worldwide. And “Uncut Gems” has made $44 million globally in just three weeks, earning the second highest per-screen average of the year ($107,448). So yes, there is a hunger for independent film, during a time where some big-budget studio fare like “Dark Phoenix,” “Charlie’s Angels,” Terminator: Dark Fate” and “Cats” can’t get their return on investment.
Independent distributors — classified as distributors outside of majors and mini-majors like Disney, Universal, Warner Bros., Paramount, Sony and Lionsgate — also accounted for roughly the same amount of domestic market share as 2018: approximately 14%.
Also Read: Netflix Acquires Documentary 'Mucho Mucho Amor' Ahead of Sundance
2. Everyone Will Be Looking Over Their Shoulder
With the influx of streaming platforms, competition is high. And insiders say there might be a copycat effect: When one streamer makes a move, the others will (want to) do something similar.
“There are new buyers in the marketplace, and everyone will be looking over their shoulder to see what their competitors are doing, which should make for a healthy market,” Wheeler said. ICM is selling buzzy films “Worth” and “Disclosure: Trans Lives on Screen” at the festival. “I am feeling optimistic.”
And traditional indie distributors recognize that in a bidding war, they just can’t compete with the deep pockets of the streaming giants. “Netflix and Amazon, if they want something, they are going to get it before we do because they have deeper pockets,” one buyer told TheWrap. “The streamers aren’t competing with us on the same level and it hasn’t affected our business yet, and I don’t think the streamers will change our strategy a lot — it actually gives us more leverage.”
3. Here’s Who Will Buy — and Who Has a Full Slate for 2020
Who will be touching down in Park City with their checkbooks ready depends a lot on how full the company’s release slate is for 2020. Focus Features (which has “Promising Young Woman” and “Never, Rarely, Sometimes, Always” at the festival) and Bleecker Street (which is distributing “The Assistant” and “Dream Horse”), for example, might not be as active this year given their release schedule is already pretty packed for the year.
A24 is always stacked, especially given the fact the company produces its own films, and Neon also has a few films set for release this year, including last year’s Sundance selection “The Lodge.” According to insiders, many filmmakers are vying to work with the distributor given the company’s success with “Parasite.” Sony Pictures Classics — which already bought “The Father” ahead of the festival — Fox Searchlight and IFC Films have a pretty stacked slate as well. 1091 Media, formerly The Orchard, will likely be vying for product.
While few companies have made movies for themselves in-house, like A24, other distributors like Fox Searchlight, Fox and Bleecker Street still need content and are likely to come in strong buying mode, said the sales agent.
The second sales agent noted that the uncertainty around the market has dissipated since the last wave of corporate mergers involving media companies. “There is more clarity with Disney and Fox and Fox Searchlight and Hulu than there was last year, and they are coming after movies as aggressive as ever,” the insider said. “HBO Max and Warners are settling and they are expressing needs for films. Fundamentally, everyone is hungry right now.”
Wheeler agreed, nothing that there is also of product up for grabs, especially when you compare this year’s Sundance slate to last year’s Toronto, where most films already had distribution set up. “The traditional guys will be there too, and there is now a clearer demarcation of what the streamers are looking to do and the kind of content that works for the traditional distributors. I think there will be enough to go around.”
Also Read: 'The Father' Starring Anthony Hopkins and Olivia Colman Acquired by Sony Pictures Classics Ahead of Sundance
One big question mark is Amazon Studios, which may be skittish after making multiple purchases of projects upwards of $10 million last year that underwhelmed at the box office, like “Late Night” and “Brittany Runs a Marathon.” Insiders told TheWrap the company might be reevaluating its spending this year. An Amazon spokesperson had no comment in regard to the company’s spending plans, but did tell TheWrap that three of the five best performing original movies of all time on Prime Video were “Late Night,” “Brittany Runs a Marathon” and another Sundance acquisition, “The Report.” Moreover, Amazon has insisted it does not use box office as a measurement of success.
Last year’s splashy purchases — which produced middling theatrical success were the result of a relatively new team at Sundance. Julie Rapaport was hired as co-head of the film division in September 2018 alongside Ted Hope and Matt Newman. “It was a moment for them to enter the marketplace with their new leadership in place and making a name for themselves, and they stand behind the movies they bought,” the first sales agent said of the streamer’s 2019 Sundance buying spree.
“They are looking less at theatrical revenue but instead are looking at public subscribing,” the agent said, but noted that the streamer is likely to be less ambitious this year. “While I think they will show up, I don’t think they’ll be buying three movies upwards of $10 million each.”
Netflix is pumping out content left and right, most of it created in-house, but insiders said the streamer might pick up a documentary here and there, or acquire some foreign language films. “Netflix is always in the conversation — we’ve seen a trend where they haven’t been able to capture the opportunities at Sundance because filmmakers still want the theatrical distribution. They still have a chance to create a name for themselves,” the sales agent said, adding, “We’ve seen movies that just make more sense on the streamer.”
The question is how new corporately backed streamers like Disney+ and HBO Max will approach the festival’s fare. “It’s how we felt about Apple last year — they came in guns blazing,” a third insider said. “For everyone who is just starting out, it’s that first acquisition that is going to carve out what their slate is going to look like.”
For prestige features, the second sales agent expects veteran indie players like Sony Classics, IFC Films, Magnolia and Neon to come through with deals by promising upfront movie with theatrical release guarantees.
Also Read: Ethan Hawke, Dee Rees, Emily Mortimer Among Sundance 2020 Jury Members
Many sellers are looking to find creative ways to strike deals with buyers that will transcend just one medium. “It’s more about being creative,” Wheeler said, explaining that ICM’s sale of “Selah and the Spades” to Amazon included a deal to build out the project as a TV show. “I’m not sure if we would have made that deal with Amazon had the TV idea not been a part of it. We are thinking outside the box more often now that the lines between TV and film are increasingly blurred, we are thinking about whether we can sell this not only as a film that stands alone on its own merit but also as piece of an IP — that can live on and become a larger universe?”
It will be interesting to see what Jeffrey Katzenberg’s Quibi does at the festival this year, since the company is focused on short-form video instead of feature-length projects. Insiders believe Quibi might seek out a different type of deal. “They are less interested in picking up a movie and cutting it up,” the first sales agent said. “What they are trying to do is to get filmmakers and talent and ask them, do they have an idea that can spawn into a project for their platform. In their mind, it’s like, Why not be there and strike in the moment when someone has an idea?”
A spokesperson for Quibi has not yet responded to TheWrap’s request for comment.
6. Filmmakers Are Embracing New Paradigms
The streamers have been a point of contention in the film industry for years, but it seems that more filmmakers are open to working with not just traditional distributors but also streaming platforms. “Everyone is starting to come to grips with the new paradigm and the fact that people are viewing content in different ways,” Wheeler said. “Generally, people are becoming more open to the Netflix model.”
After all, Netflix has done limited theatrical runs for select prestige films like “The Irishman” and “Roma,” so filmmakers can get their films seen on the big and small screens. Additionally, streaming deals are comprised of money up front — there are no residuals deals in place as you’d see with a more traditional film sale given that there is no theatrical run. This can ensure financial security for filmmakers and producers — though it limits the upside for a truly breakout hit.
While Wheeler said people are coming to terms with the shifting medium, a fourth sales agent told TheWrap that Netflix’s appeal isn’t anything new. “Filmmakers have been open to the streamers for a while now,” the insider told TheWrap. “There is an openness to everything because filmmakers are aware of all the opportunities.”
16 Buzziest Sundance Movies for Sale in 2020, From Julianne Moore's 'The Glorias' to Michael Keaton's 'Worth' (Photos)
It's another Sundance Film Festival of slopes, snow, stars and sales. That's right, the market at the Sundance Film Festival is gearing up yet again with some buzzy titles among those just premiering at the festival and those in competition. And after last year produced some mega deals for movies like "Late Night," "The Farewell" and "Brittany Runs a Marathon" to name just a few, these are the features and documentaries TheWrap will be keeping an eye on while in Park City.
All Photos Courtesy of Sundance Institute
"The 40-Year-Old Version"
No, it's not the Steve Carell movie. Radha Blank wrote, directed and stars in this highly personal film about what it really looks like to be a struggling actress at age 40 when she leaves the world of community theater and records a rap demo track. The film marks Blank's directorial debut and is shot in New York entirely in black and white. "Queen & Slim" scribe Lena Waithe is a producer on the film, and "The 40-Year-Old Version" is playing in the U.S. Dramatic Competition.
Courtesy of Sundance Institute | photo by Eric Branco
"Bad Hair"
Justin Simien's follow-up to his thought-provoking conversation piece "Dear White People" is set in LA in 1989 about a group of enterprising women trying to climb the ladder and be the next star of a music video TV show, all while battling in a war of words and dreadlocks. Elle Lorraine, Vanessa Williams, Jay Pharoah, Lena Waithe, Blair Underwood and Laverne Cox all star in this satirical, psychological thriller that's debuting in the midnight section of the festival.
Courtesy of Sundance Institute
"Black Bear"
"Black Bear" stars Aubrey Plaza, Christopher Abbott and Sarah Gadon in a drama about a couple who welcomes an aspiring filmmaker into their remote lake house, only to be wrapped up in a game of desire, manipulation and jealousy in the filmmaker's pursuit of art. The film is directed and written by Lawrence Michael Levine and will premiere in the NEXT section of the festival.
Courtesy of Sundance Institute | photo by Rob Leitzell
"Disclosure: Trans Lives on Screen"
In "Disclosure," filmmaker Sam Feder sits down with Hollywood's leaders and thinkers in the trans community like Laverne Cox, Lilly Wachowski, Yance Ford, Mj Rodriguez, Jamie Clayton and Chaz Bono. The documentary grapples with the history of trans characters in TV and movies, going way back to "Dog Days Afternoon" and "Boys Don't Cry" up through FX's "Pose."
Courtesy of Sundance Institute
"Four Good Days"
Glenn Close reunites with her director on "Albert Nobbs," Rodrigo Garcia, for this drama in which Close plays a mother who gets a surprise visit from her estranged, drug addict daughter (Mila Kunis). Close's character is resistant to give her daughter another chance after years of failed rehab and lying, but something about this time feels different.
Courtesy of Sundance Institute | photo by Igor Jadue Lillo
"The Glorias"
Julianne Moore stars in Julie Taymor's biopic "The Glorias" about the journalist and feminist icon Gloria Steinem. But she's just one of five women playing Steinem at different stages of her journey in Taymor's unconventional approach to adapting Steinem's memoir "Life on the Road." Alicia Vikander, Janelle Monáe, Timothy Hutton, Lulu Wilson, Lorraine Toussaint and Bette Midler all star in the film.
Courtesy of Sundance Institute
"The Go-Go's"
This documentary's got the beat as it goes behind the scenes of one of the defining pop punk girl groups of the 1980s, The Go-Gos. The film from director Alison Ellwood reunites founding band members Belinda Carlisle and Jane Wiedlin during their early days in the Los Angeles punk rock scene up through their hit-making, MTV success and turn to fame, drugs and alcohol.
Courtesy of Sundance Institute | photo by Paul Natkin
"Ironbark"
Benedict Cumberbatch stars in this drama set during the Cold War-era and Cuban Missile Crisis about a mild-mannered businessman called upon by the British government to help uncover a Soviet mole. Jessie Buckley, Rachel Brosnahan and Angus Wright co-star. This is just the second feature film from Dominic Cooke after his 2017 film "On Chesil Beach."
Courtesy of Sundance Institute
"The Nest"
In what is incredibly only Sean Durkin's second feature film since he won the directing prize from Sundance for "Martha Marcy May Marlene" in 2011, "The Nest" stars Jude Law and Carrie Coon as two ex-pats who leave suburban America for London in the 1980s. The two-handed character drama shows how their relationship slowly simmers and boils over as they try to manage their new, lavish lifestyle in England.
Courtesy of Sundance Institute
"The Night House"
Playing in the midnight section of the festival, this horror film from director David Bruckner stars Rebecca Hall as a woman living alone in a lakeside home following the recent death of her husband. The film is an updated take on a traditional ghost story as Hall experiences dreams that drive her to find answers about her husband's past. Sarah Goldberg and Stacy Martin co-star.
Courtesy of Sundance Institute | photo by Elisha Christian
"On the Record"
The latest documentary from the directors of "The Hunting Ground" and "The Invisible War" is back on the market after Oprah Winfrey removed herself as an executive producer from the project and pulled the film from debuting on Apple TV+. Winfrey specifically felt the need to step aside from the movie because directors Kirby Dick and Amy Ziering wanted to show the film at Sundance before Winfrey felt it was complete. "On the Record" follows music executive Drew Dixon in the early days of #MeToo as she grapples with the decision to come forward about her her accusations of rape against Def-Jam Records co-founder Russell Simmons.
Courtesy of Sundance Institute | photo by Martyna Starosta
"Save Yourselves!"
"Save Yourselves" is a zany sci-fi comedy about a Brooklyn couple that retreats to a remote cabin in the woods in order to unplug, only to miss the news of an alien invasion that's destroyed much of civilization. The film from directors Eleanor Wilson and Alex Huston Fischer satirizes millennial culture and modern love. John Reynolds and Sunita Mani star in the comedy that's premiering in the U.S. Dramatic Competition.
Courtesy of Sundance Institute | photo by Matt Clegg
"Shirley"
"Shirley" stars Elisabeth Moss as the famous gothic horror author of stories such as "The Lottery" and "The Haunting of Hill House," Shirley Jackson. It's an unconventional biopic about how Jackson discovers the inspiration for her next novel through the eccentric behavior of a young couple she and her husband take into their home. Michael Stuhlbarg, Logan Lerman and Odessa Young co-star in the film from "Madeline's Madeline" director Josephine Decker. The film is playing in the U.S. Dramatic Competition.
Courtesy of Sundance Institute | photo by Thatcher Keats
"Sylvie's Love"
Romantic, elegant and with a jazzy soundtrack, "Sylvie's Love" is a lush love story set in 1957 New York and spread out over years. Tessa Thompson is said to give a powerful performance in the film from writer and director Eugene Ashe, who melds music into his romance for a rich period piece. "Sylvie's Love" is playing in competition in the U.S. Dramatic section.
Courtesy of Sundance Institute
"Wander Darkly"
Part mystery, part family drama and featuring what's described by Sundance as "demanding tonal shifts," "Wander Darkly" stars Sienna Miller trying to reckon with the future of her relationship with her husband (Diego Luna) and her infant child. At the same time, she's forced to solve the mystery of a recent traumatic accident. Tara Miele directs the film that's playing in competition in the U.S. Dramatic section.
Courtesy of Sundance Institute | photo by Carolina Costa
"Worth"
"Worth" gives a new perspective of New York post-9/11 by following Michael Keaton as an attorney appointed to lead the 9/11 Victim Compensation Fund. But Keaton's character has a change of heart when he comes face to face with a community leader played by Stanley Tucci who lost his wife in the World Trade Center. "Worth" is director Sara Colangelo's third film, all of which have premiered at Sundance, including her previous film "The Kindergarten Teacher," which won top directing honors at the festival in 2018.
Courtesy of Sundance Institute
Documentaries like “On the Record,” “Disclosure” and “The Go-Go’s” are also making noise
It's another Sundance Film Festival of slopes, snow, stars and sales. That's right, the market at the Sundance Film Festival is gearing up yet again with some buzzy titles among those just premiering at the festival and those in competition. And after last year produced some mega deals for movies like "Late Night," "The Farewell" and "Brittany Runs a Marathon" to name just a few, these are the features and documentaries TheWrap will be keeping an eye on while in Park City.
What to Expect From the Manufacturing Sector This Earnings Season
With earnings season just around the corner, investors are studying the companies that report early, hoping to get a sense of things to come. One such company is MSC Industrial Direct (NYSE:MSM). Because it's an industrial supply company with short sales cycles, its revenue is always going to be closely tied to current conditions in manufacturing, so let's take a look at what its earnings said about what to expect.
Image source: Getty Images.
Expect uncertainty
There are four key takeaways for the industrial sector from MSC's earnings presentations:
Frankly, it's no secret that the manufacturing sector will be weak in the first half. Indeed, the best bullish case for the industrial sector in 2020 is built on the idea that the second half will start to see sales trends turning upward while valuations of some stocks in the sector are favorable.
Of course, if you buy into this thesis, you have to be prepared for some potentially negative news in the near term. For example, here's a look at MSC's monthly average daily sales (ADS) growth. Moreover, management's guidance is for ADS to decline by 1.5% to 3.5% in the first quarter, with January and February down 2.9% on average.
Data source: MSC Industrial Direct. YOY = year over year.
Earnings guidance could be mixed
The environment is getting worse in the near term, and unfortunately the optics on the first quarter could be murky. One issue that could complicate guidance for many companies comes from the fact that Christmas and New Year fell on Wednesdays. This led to MSC's having one fewer sales day in December and "acute softness" in sales in the last two weeks, according to Gershwind.
These factors are likely to lead to some confusion as to the true strength of many industrial companies in December, so look out for some varied commentary on business trends exiting the quarter.
Automotive, trucking, agriculture, and oil and gas will be weak spots
All of these industries have experienced weakness in the second half of 2019, and that looks likely to persist at least into the first half of 2020. Gershwind called them out as being acutely weak, so investors can look forward to a slew of negative commentary on these industries in the coming earnings season.
First signs of weakness in aerospace
One of the few bright spots in the industrial sector in 2019, the aerospace sector has been one of the "go-to" areas of investment in the last year or so. Many of the best manufacturing stocks in 2019 were in this sector (defense was also strong).
That said, the decision to halt production of the 737 MAX while Boeing waits for approval for its return to service looks likely to hit some companies in the first quarter. It's important to distinguish between the aftermarket and original equipment manufacturer (OEM) in aerospace -- it's companies exposed to the latter that are likely to be affected. Aftermarket companies might actually see some benefit as airlines make plans to use older aircraft more while they wait for the 737 MAX to return to service.
What it all means for investors
Based on MSC Industrial's earnings report and guidance, investors in the sector should brace themselves for some disappointing commentary on first-quarter trading, with much of it coming from automotive, trucking, and heavy industries in general, and possibly some coming from aerospace, too.
True believers in the second-half recovery thesis will use any negative reaction as an opportunity to buy into the stocks in the affected sectors, while the doubters may well sell out.
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