A few major companies in the Basic Materials sector are gearing up to report their quarterly numbers tomorrow. The third-quarter earnings picture for the Basic Materials sector looks lackluster. Overall earnings for the sector are projected to fall 22.5% on 10.5% lower revenues, per the latest Earnings Trends. However, the projections reflect an improvement from a 48.8% decline in earnings on a 20.3% drop in revenues witnessed in the second quarter.
A slowdown in demand in China — the world’s biggest consumer of commodities — amid the coronavirus pandemic put the Basic Materials sector on thin ice for most of the first half.
However, the sector staged an impressive rebound in the third quarter on improving economic conditions, demand recovery in China and rising commodity prices.
The revival of demand in China is the prime reason behind the Basic Materials sector’s rebound. China is gradually clawing out of the coronavirus-induced stupor as industrial activities are picking up pace following the easing of restrictions.
Among metals, gold was the bright spot in the third quarter as fears over the coronavirus pandemic made it the most attractive safe-haven asset. Notably, gold prices broke above the $2,000-an ounce mark in end-July and hit an all-time high of $2,089 in early August. Global uncertainties over the coronavirus pandemic, the ultra-low interest rate environment and renewed U.S.-China tensions are among the factors that contributed to the bullion’s rally. Gold prices have risen 26% so far this year and gained 4% in the third quarter, primarily buoyed by a high level of uncertainty stemming from the pandemic.
Silver prices also increased 26% in the third quarter, triggered by the recent recovery in industrial activity. The industrial metal has gained 36% year to date.
Also, China’s rebound has played a key role in the copper price recovery. Surging demand in China underpinned by a rebound in industrial production and supply chain disruptions amid the pandemic largely contributed to the rally in copper prices during the third quarter.
Moreover, a recovery in China boosted demand for iron ore during the September quarter, as reflected by rising imports. Worries over a supply shortage from Brazil, a country battered by coronavirus, also contributed to the spike in prices of the steel-making commodity.
As such, miners’ third-quarter results are expected to reflect the benefits from higher prices. Miners have also been aiming to whittle down operational costs, improve operating efficiency within existing mines, pay down debt, eliminate non-core assets and concentrate on their highest ore-grade assets. Benefits of these strategic actions are likely to reflect on their third-quarter performance.
Meanwhile, an upturn in demand across major chemical end-use markets such as construction, automotive and electronics from the pandemic-induced slowdown is likely to have aided the performance of chemical companies in the third quarter.
Demand for chemicals recovered in the third quarter with the resumption of global economic activities following the easing of restrictions. The uptick in demand was driven by recovering manufacturing and industrial activities globally and the economic rebound in China.
Notably, the automotive industry has rebounded strongly following the pandemic-driven slump, riding on a revival in consumer demand. Pent-up demand and the shift toward private transportation amid the pandemic are driving new car sales globally. Automotive original equipment manufacturers have ramped up production following shutdowns in the second quarter. The resumption of many projects, which were earlier put on hold due to labor shortages and supply chain disruptions, also supported the rebound in the construction sector.
A recovery in construction and automotive markets is likely to have spurred up demand for chemicals in the third quarter. Improved industrial demand is likely to have provided support to sales volumes and the top line of chemical companies in the September quarter.
Moreover, benefits of strategic measures, including cost management and productivity improvement, acquisitions, efficiency improvement and actions to raise selling prices to counter cost inflation might reflect on third-quarter results of chemical companies.
We take a sneak peek at five Basic Materials stocks that are slated to report their third-quarter results on Oct 29.
DuPont de Nemours, Inc. DD will report results before the bell. Our proven model does not conclusively predict an earnings beat for the company. This is because it has an Earnings ESP of -1.73% and a Zacks Rank #3 (Hold). You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
The Zacks Consensus Estimate for revenues for the third quarter for DuPont is currently pegged at $5,047 million. The consensus estimate for earnings is 77 cents.
Benefits of cost synergy savings and the company’s productivity actions are expected to get reflected on third-quarter results. However, lower nylon prices are expected to have hurt its sales. Demand weakness across certain markets amid the pandemic is also likely to have impacted the company’s top line. (Read more: DuPont Gears Up for Q3 Earnings: What's in the Cards?)
DuPont de Nemours, Inc. Price and EPS Surprise
DuPont de Nemours, Inc. price-eps-surprise | DuPont de Nemours, Inc. Quote
Eastman Chemical Company EMN will report results after the closing bell. Our proven model predicts an earnings beat for the company this time around. This is because it has an Earnings ESP of +0.89% and a Zacks Rank #2 (Buy).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for revenues for Eastman Chemical for the third quarter is currently pinned at $2,101 million, indicating a 9.6% decline from the year-ago reported figure. The consensus estimate for earnings stands at $1.40.
The company’s earnings are likely to have benefited from its cost-management actions and growth in high-margin products. However, demand weakness in certain markets might have affected the company’s sales volumes in the third quarter. (Read more: Eastman Chemical to Post Q3 Earnings: What's in Store?)
Eastman Chemical Company Price and EPS Surprise
Eastman Chemical Company price-eps-surprise | Eastman Chemical Company Quote
Newmont Corporation NEM will report results before the bell. Our proven model predicts an earnings beat for the company this time around. This is because it has an Earnings ESP of +1.90% and a Zacks Rank #2.
The Zacks Consensus Estimate for third-quarter consolidated revenues for Newmont is currently pegged at $3,273 million, which calls for a rise of 20.6% year over year. The consensus estimate for earnings stands at 79 cents.
The company’s third-quarter results are likely to have benefited from higher gold prices. (Read more: Will Higher Gold Prices Aid Newmont's Q3 Earnings?)
Newmont Corporation Price and EPS Surprise
Newmont Corporation price-eps-surprise | Newmont Corporation Quote
Yamana Gold Inc. AUY will report results after the bell. Our proven model does not conclusively predict an earnings beat for the company as it has an Earnings ESP of 0.00% and a Zacks Rank #3.
The Zacks Consensus Estimate for third-quarter earnings per share currently stands at 8 cents.
Higher gold and silver prices are likely to get reflected in Yamana Gold’s to-be-reported quarter’s results. It is also expected to have gained from strong operational performances across Jacobina, El Penon, Minera Florida and Canadian Malartic mines. (Read more: Yamana Gold to Report Q3 Earnings: What's in Store?)
Yamana Gold Inc. Price and EPS Surprise
Yamana Gold Inc. price-eps-surprise | Yamana Gold Inc. Quote
Huntsman Corporation HUN will report results before the bell. Our proven model predicts an earnings beat for the company this time around. This is because it has an Earnings ESP of +13.51% and a Zacks Rank #2.
The Zacks Consensus Estimate for revenues for Huntsman for the third quarter is currently pinned at $1,467 million, indicating a 13.1% year-over-year decline. The consensus estimate for earnings stands at 25 cents.
The company is expected to have benefited from improving demand trends within most of its key markets. Strength in construction related markets and improvement in automotive demand are likely to have aided its results.
Huntsman Corporation Price and EPS Surprise
Huntsman Corporation price-eps-surprise | Huntsman Corporation Quote
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