Industrial Firms See Spending Holding Its Ground in Coming Quarters
“We were really glad to see North American orders turn not negative, and we were really happy to see the industrial orders move to minus 1%.”
It wasn’t exactly a rousing pep talk that Parker-Hannifin Corp. CFO Todd Leombruno had for analysts and investors when the conglomerate reported its quarterly earnings early this month. Yes, the Cleveland-based holding company’s aerospace business continues to, ahem, fly high with expected organic growth of 8.5% in the next 12 months. But Parker’s tens of thousands of clients that buy engineered materials, filtration products and much more from its diversified industrials segment have been in a holding pattern at best in 2024.
And that appears likely to change only marginally, CEO Jennifer Parmentier told analysts Aug. 12 in forecasting “a gradual industrial recovery” that will only really show up in Parker’s early-2025 numbers.
“Destocking in the channel started over a year ago and we believe that it has pretty much played out,” Parmentier said. “We see the distribution trend going up, but I would say it’s not a step change yet. We aren’t actually seeing [customers] add inventory.”
That tone and outlook echoed the assessment a few days earlier from D.G. Macpherson, the chairman and CEO of industrial supply titan W.W. Grainger Inc. After announcing that his team had trimmed the top end of its sales guidance, Macpherson said on a conference call that demand from customers has been “pretty slow” but no worse.
“It’s consistent, though. There’s not a lot of panic,” he said. “We came in thinking that volume this year would be flat in our market, roughly something like that, and it’s probably going to be down 1[%] now.”
Macpherson chuckled at making that one-percentage-point point before adding, “That’s probably the biggest change we have in our projections.”
Relative Calm and Rate Cuts
Despite the investment markets’ momentary agita two weeks ago in the wake of a weaker July jobs report, it appears many leaders are seeing the world the same way of Macpherson. The headline on the Conference Board’s third-quarter Measure of CEO Confidence may have been about a loss of confidence in the economy over the short term but underlying numbers suggest continued progress: Two out of five CEOs plan to grow their teams in the next year—17 points higher than those planning to cut jobs—and 84% of them will either maintain or grow their capital spending budgets in 2025.
Recent data from the Association for Manufacturing Technology point to the same relative calm and to Parker executives’ outlook for a gradual recovery: Orders for machine tools climbed in June from the prior month and were down less than 2% year over year, a gap far smaller than the year-to-date figure. “Manufacturers are generally investing in more automated, task-specific solutions,” AMT officials said in a statement.
And they’re doing so even though Federal Reserve leaders haven’t yet cut interest rates, something that’s now almost universally expected to happen in September and which is likely to spur some more investment. Rockwell Automation Inc. Chairman and CEO Blake Moret recently said interest rates are among the factors leading some manufacturing clients to delay capacity expansions even though they are, as the AMT said, still putting money to work on resilience and efficiency projects.
Rockwell has been struggling this year with machine-builder customers slowing their order pace as they work down inventories amassed during the supply-chain crunch during the COVID-19 pandemic. Moret told analysts Aug. 7 that both distributors and machine builders have whittled down inventories but that Rockwell is now seeing “some weaker conditions in end markets.”
Hence, Moret and his team are now forecasting the same gradual recovery that Parmentier sees for Parker rather than a sharper bounce-back. Rockwell’s orders are still expected to grow quarter over quarter, though, as they have since troughing out last fall. Still, people’s patience will be put to the test.
“We expect that there’s not going to be one month all clear where, suddenly, it’s gone,” Moret said.
