16 February 2024Deutsche BankResearch Global Strategy Asset Allocation Date Strategy Update What Companies Are Saying: Signs Of A Turn UpThis report presents a collection of management commentary from 130 earnings calls in the Q4 reporting season. We present the key themes that emerged below.Companies continue to cite a tough macro backdrop but several now see signs of a turn up emerging. They are however keeping a lid on expectations and are at pains to note that they are not macro forecasters and given the continued pessimism and uncertainty around factors outside their control, they remain cautious. A key drag in recent quarters has been inventory destocking, but several companies now see light at the end of the tunnel with the process well advanced, even if restocking is not yet on the cards. The US continued to be a relative outperformer, Europe was mixed, while China a clear source of weakness. On the latter, many companies drew a contrast between near term cyclical headwinds and long-term potential. Most see cost and pricing dynamics as being in balance, indicating a return to normal. Companies are increasingly comfortable with the labor market even as they expect the pressure from wage inflation to persist. Many are of course counting on the strong labor market and wage growth to continue driving demand for their products. Part of their confidence stems from raising productivity to meet a variety of resource constraints and cost challenges, using a wide set of tools going well beyond AI. Debt reduction continues to be a priority amidst higher interest rates but given strong cashflows and substantial progress towards their deleveraging goals, many companies are increasingly deploying capital towards payouts in the form of dividends and buybacks, some notably for the first time.Several companies point to signs of a turn upEven as companies cited a tough macro backdrop, several saw signs of a turn emerging. Packaging Corp of America said “throughout the quarter, demand in the Packaging segment was stronger than our expectations“ while Comerica said “although the economic environment remains uncertain, we observed a cautiously more optimistic trend in customer sentiment.” Dow Inc. noted, “we expect near-term demand to remain pressured” but “that said, we are seeing some initial positive indicators.” Seagate said a “gradual recovery within the US cloud market has started to take shape.” Sherwin-Williams reminded that a year ago they said that “if conditions improved, our performance would be better than our initial guidance” and “that is exactly what happened.” Teradyne said, “visibility is limited, Binky ChadhaChief Strategist+1-212-250-4776Matthew BarnardHead of US Company Research+1-212-250-5111Parag ThatteStrategist+1-212-250-6605Karthik PrabhuStrategist+1-212-250-1246Ben LipsiusStrategist+1-212-250-9671Deutsche Bank Securities...
