Real Q4 Pessimism – From Those That Should Know Best

gcopley

There is a growing expectation that Q4 2013 industrial production in the US has stagnated completely, in part because of the government shutdown, but also in part because of the business uncertainty caused by the political jockeying in Washington and its overall impact on confidence.

Airgas and Praxair are both significant packaged gas suppliers in the US market – cylinders of oxygen, nitrogen, argon, carbon dioxide, helium and other specialty gases.  These are consumables – bought and ordered as needed and as used – by a wide variety of industries serving all aspects of manufacturing from heavy industry to food manufacture and packaging.  As such, these companies and others in the business have a very tight pulse on real time manufacturing activity.

Both companies have guided negatively for Q4 2013, citing US industrial production as the reason. 

Consequently we would be concerned about any other company with a high exposure to US manufacturing, particularly those with more of a consumable bias – where sales are driven by industry operating rates.  The table below shows sector (and in some cases sub-sector) consensus revenue growth estimates for Q4 2013 vs. Q4 2012.  The sectors with the highest exposure to US manufacturing and where revenue growth looks very optimistic would be Trucking, Rail, Electrical Equipment, Commodity Chemicals (not sure there is much pricing gain versus Q4 2012), and Coatings (though probably only industrial coatings).  If PX and ARG are right we should expect to see some negative late quarter revisions for some of these companies/sectors.

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