Article/Intelligence
Q1’25 US Earnings Weekly: Week Ended April 25 – Quarterly Top-Line Growth Remains in Low Single Digits; Financial Sector Results in the Red for First Time in Roughly 1.5 Years
Relevant Item:
Fundamentals by Octus
First-quarter 2025 earnings reporting is underway, driven mainly by public companies in the initial stages. Octus, formerly Reorg, covered 116 companies spanning high-yield borrowers, leveraged loan issuers and other mid-market leveraged credits outside of the major indexes in the week ended April 25. Of these, Fundamentals by Octus covered 84 high-yield and leveraged loan issuers, of which about 85% are public companies. Fundamentals was focused on the major loan and bond indexes.
The following observations were made using information from the 101 companies that have reported in the past three weeks and are included in Fundamentals by Octus. In addition, Octus’ credit analysts review trends observed from reported earnings and calls in the following sectors: homebuilders, auto dealerships, consumer credit, software services, airlines, chemicals packaging and aluminum.
- Quarterly revenue growth for the cohort reporting during the week ended April 25 was at 2.1% when looking at the median, trailing growth from the previous quarter and the same quarter a year earlier by almost two times. Excluding financials, which was the only sector with negative top-line growth, the median revenue growth was 3.6%. Regarding public companies, some of the laggards were CNX Resources and Rithm Capital, posting year-over-year quarterly top-line declines of 78.6% and 40.3%, respectively.
- Quarterly median EBITDA growth was 5.5%, slightly trailing growth from the previous quarter and the same quarter a year earlier. Regarding some of the main public company laggards, Rithm Capital and AutoStore posted year-over-year quarterly EBITDA declines of 134.6% and 66.7%, respectively.
- From last week’s cohort, financials was the only sector that experienced negative quarterly revenue growth year over year. Though it’s still very early into first-quarter earnings reports, and the sample represents only one week, it has shown early signs of potential cracks regarding growth for some financial companies, as last week broke a long-lasting trend when a median financials company outperformed other sectors and had posted double-digit growth over the last six quarters. In terms of quarterly adjusted EBITDA growth year-over-year, consumer discretionary was the only sector in the red.
- EBITDA margin for the median company was 21.4%, in line with the previous quarter and the same quarter a year earlier. Median free cash flow margin was 7.9% – lower by about 140 bps compared with the same quarter a year earlier, and almost two times lower compared with the previous quarter, with seasonality being one of the key reasons.
- Median company net leverage was 3.1x, in line with the figures from the previous quarter and the same period a year earlier. Median interest coverage was 6x, which improved by 0.2x to 0.7x when compared with the previous quarter and the same quarter a year earlier, respectively.
Sample includes companies from week ended April 25
The latest rolling three-week data regarding quarterly revenue year-over-year growth represented a distribution with relatively fat tails, meaning that a large number of companies posted revenue growth at the highest and lowest ends of the spectrum from our outlined buckets in the chart below. EBITDA growth distribution also had relatively fat tails, but the magnitude was lower. The data was skewed toward more positive revenue and EBITDA growth, with 62% of companies reporting positive revenue growth, and 59% posting positive EBITDA year-over-year growth.
The distribution of delta between current (first-quarter 2025) versus prior-year (first-quarter 2024) year-over-year growth was more skewed toward the negative with regard to both revenue and EBITDA growth metrics. The delta of both revenue and EBITDA growth distributions had relatively fat tails, meaning a significant number of companies were represented at both ends of the distribution spectrum.
Sample includes rolling last three weeks of earnings
Data from the week ended April 25 shows that companies were more represented in the top-right quadrant (43.6% of companies, highlighted in green in the chart below) of quarterly revenue growth, which reflects companies that experienced positive revenue growth in the first quarters of both 2025 and 2024. At the same time, 23.1% of companies had a divergence, showing positive quarterly revenue growth in the first quarter of 2024 but a contraction in the first quarter of 2025. Some of the public companies that experienced meaningful divergence in revenue growth were Tri Pointe Homes and Weatherford International.
Sample includes companies from week ended April 25, excluding outliers
Sample includes companies from week ended April 25; median values except sample size
Note: Sectors with fewer than three companies and unassigned sector companies were excluded.
Sample includes all 2025 first-quarter-to-date companies; median values except sample size
Note: Sectors with fewer than three companies and unassigned sector companies were excluded.
In addition to coverage of individual companies, Octus provides select insights and trends by sector from our analyst team:
Homebuilders
Homebuilders across the board, including Taylor Morrison, Century Communities and Tri Pointe Homes, have cut their full-year 2025 guidance on closings because of a weaker-than-expected start to the critical spring home-selling season, as indicated by declines in orders. Larger bellwether investment-grade homebuilders such as D.R. Horton and PulteGroup also reduced their full-year guidance for closings and signaled a persistent need to use sales incentives, which will negatively affect gross margins and indicate broader pains ahead for the industry this year. Some trends from prior quarters continue to persist, including the popularity of spec builds and the resiliency of the move-up homebuyer. New trends have also emerged, including a potentially loosening land market and growing interest in the existing home market, particularly in states with elevated inventories such as Texas and Florida. All the homebuilders that reported results thus far have confirmed that tariffs will likely have an immaterial impact on costs for this year.
Several high-yield homebuilders are still slated to report earnings in the coming weeks. LGI Homes is scheduled to report its earnings today, and Beazer Homes is scheduled to report its earnings on Thursday, May 1. Hovnanian Enterprises, Dream Finders Homes and Landsea Homes have yet to schedule their earnings. Octus will monitor which builders remain disciplined in their sales pace and strategy in the coming quarters.
Auto Dealers
Car dealerships releasing results last week, including Lithia Motors, Group 1 and Sonic, generally reported strong new-vehicle sales figures supported by consumers rushing to buy vehicles before auto tariffs came into effect on April 2. Same-store sales growth was also supported by strength in after-sales segments, which companies said continues to be driven by a high volume of warranty work.
Although average gross profit per unit, or GPU, continues to retreat from historical highs for both new and used vehicles across dealerships, used GPUs are beginning to level out. Management teams also expressed belief that new GPUs are beginning to approach expected normalized levels, which will be structurally higher than pre-pandemic GPUs. There is a belief among management teams that automotive tariffs may drive GPUs back upward, though at the expense of lower unit sales.
Companies were generally cautiously optimistic regarding the tariff situation. Lithia Motors management said it has “over 45%” of its inventory that is not affected by tariffs and believes it is the “most diversified and the least impacted” of the major dealership groups. It also said that most manufacturers have stabilized pricing through the 2025 model year, saying that should keep prices somewhat stable through May.
Sonic management said that it believes that, “based on conversations with the manufacturers over the next 90 days, that things will settle down. Is there going to be a price increase? Maybe, but we don’t see it as being a 25% price increase … And we’ll see what happens in the coming months ahead. But … our team is not too concerned that we won’t have a solid resolution over the next 90 days or so.” Management further said that the government will reach a compromise.
Group 1 said that none of the car manufacturers have “taken drastic steps,” but that it is being more cautious about allocations, which has led to a tightening in inventories. It expects modest price increases at first but also that a moderation in vehicle incentives will be one of the key levers that are pulled.
Management teams reaffirmed Octus’ view that after-sales segments would be likely beneficiaries if tariffs drive lower vehicle sales and result in customers needing to repair existing, older vehicles.
Credit Card Loans
Credit card lenders Synchrony and Bread reported last week, offering positive signals that more borrowers are catching up on their late credit card payments, as indicated by their declining 30-plus day delinquency rates. Synchrony suggested that while lower-income borrowers have been disciplined with their spending levels, which has led them to manage their budgets better and reduce the overall level of missed payments, the higher-income consumer is still seeing growth in their purchase amounts despite the economic uncertainty ahead. Given the expectation that consumers will have much more unpredictable spending behavior with recently enacted tariffs, lenders across the industry have increased their credit reserves quarter over quarter.
Both companies also commented on the recent federal court ruling to vacate the Consumer Financial Protection Bureau’s rule capping credit card late fees to $8 and noted the positive effects this has toward the industry. Regarding any potential pullback of other increased fees that were implemented initially to mitigate the effects of these anticipated reduced charges, Synchrony noted it does not have any plan at the moment to undo these changes, as it did not lead to a reduction in customer accounts or spending.
Software Services
High-yield software services company SS&C Technologies reflected on the potential secondary impact of ongoing tariffs on its business, with cautionary guidance for the second quarter.
Guiding toward 2.5% year-over-year organic growth rate for the second quarter, which is meaningfully lower than the 5% to 7% organic growth over the last four quarters, management said, “We’re just putting a measure of conservatism into the second quarter given everything that’s happening in the world right now.” Organic growth does not include foreign currency impact and sales arising from acquisitions.
Although SS&C Technologies, a provider of software solutions to financial institutions and healthcare companies, appears to be remote from the immediate impact of tariffs, the company said, “[Tariffs’] opportunity to slow down deals is certainly possible. We’ve got a lot of deals we’ve sold, but the revenue has not started flowing in yet.”
Although it affirmed that the demand environment for its products was decent in March and April, it guided toward full-year 2025 organic growth of 4.4% at the midpoint, a slight cut from previous guidance of 5% and 6% growth in 2024.
Airlines
Three of the major airlines reported earnings last week, echoing trends reported by United and Delta, which announced earnings earlier, of domestic main cabin demand softness contrasted with strength in premium, loyalty program and international offerings.
Economic uncertainty led both Southwest Airlines and American Airlines to withdraw their full-year guidance, and their second-quarter revenue guidance anticipated a continuation of the soft booking trends. Both Alaska Airlines and Southwest identified an anticipated six-point negative revenue impact, while American said it is seeing “mid-to-high single-digit weakness” in its domestic main cabin offerings, particularly over the summer. Southwest announced it will reduce capacity in the second half of the year, and American said it would have a “negative bias to all capacity” and would be “nimble and quick to react.”
Despite the domestic main cabin weakness, the airlines identified resilience in their premium, loyalty and international offerings. Alaska expanded its premium revenue by 10% year over year in the first quarter, while its loyalty program cash remuneration increased by 12% in the first quarter compared with the prior-year period. Management said it is “not seeing any pressure” in the first-class cabin, which achieved “very strong double-digit increases” in revenue, though its premium class offerings are “probably a little softer.” American’s premium revenue rose by 3% year over year in the first quarter, and its loyalty revenues increased by 5% year over year, with an 8% increase in co-branded credit card spending.
International travel also continued to outperform, with American reporting positive year-over-year unit revenues across all regions, including Atlantic long-haul passenger revenues rising 10.5% year over year in the first quarter. American acknowledged that the unit revenue year-over-year growth rates in the second quarter are “decelerating a little bit” from the first quarter but said growth is “still strong” and “fueled by really strong premium demand.” Alaska also recognized that international markets are “clearly outperforming,” and management emphasized how, after the Hawaiian Airlines acquisition, Alaska is well positioned to “capture high-value international demand.” It also disclosed that “margins improved 15 points” for its international franchise in Hawaii.
Although corporate travel slowed from the double-digit growth rates reported earlier this year, the airlines reported a stabilization in corporate travel trends. Alaska realized a 3% year-over-year increase in corporate revenues in the first quarter and noted that forward bookings are up “low single digits,” an improvement from where they “seem to have bottomed out” in March.
Southwest also said business travel has “held up” and is “steady as she goes,” with its managed business rising around 4% excluding government, which all carriers acknowledged remains very weak. American achieved an 8% year-over-year increase in managed business revenue in the first quarter, as it worked to regain share after its challenges with its sales and distribution strategy last year.
Chemicals
Element Solutions reported first-quarter adjusted EBITDA slightly above guidance and reiterated its full-year guidance, describing its full-year guidance as its “best estimate” albeit with “more uncertainty given the risk of further tariffs escalation or implementation.” Management said it believes that it has a “nimble” supply chain and that its local sourcing and manufacturing close to its customers should help it mitigate the direct impact of tariffs on its cost structure.
It added, however, that the tariff impact on end demand is “harder to assess.” It did note that the weakening U.S. dollar is easing a foreign currency headwind that it had built into its full-year guidance.
The company at the end of February closed the sale of its MacDermid Graphics business, netting $323 million of cash, of which $200 million was used to repay a portion of its term loans. With pro forma net leverage – Octus’ estimate of 2.25x – well below management’s “leverage ceiling” of 3.5x, management emphasized that is well-positioned “to deploy capital in scale” against attractive opportunities that may be created by the current volatility in the markets, noting that it still has “$500 million of cash to deploy.” These comments compare with those in February on its year-end conference call when management emphasized that it was not in any rush to deploy capital and did not believe it needed to run its business at anything like its 3.5x leverage ceiling.
The apparent difference in tone suggests a more aggressive stance, and its bond spreads have widened back out to generally in line with the BB rated specialty chemical group at just over 200 bps. Element’s spreads had narrowed sharply after October 2024 press reports that the company had hired financial advisors to explore strategic alternatives, including a potential sale.
With a change-of-control provision at 101% and current par call, the magnitude of potential upside from the current approximate 94% level for the 2028 Element senior notes in the event of a sale is well defined (at about 6 points), in line with pre-press-report levels. The apparent change in tone of the comments could well suggest less potential for a near-term sale and more potential for acquisition or share repurchase activity that could result in somewhat higher leverage.
Packaging
Ardagh Metal Packaging, or AMP, reported first-quarter adjusted EBITDA above guidance, and it increased its full-year global can shipment, adjusted EBITDA and free cash flow guidance.
AMP increased its full-year 2025 adjusted EBITDA guidance range to $695 million to $720 million from $675 million to $695 million, partly driven by an increase in expected global can shipment growth to 3% to 4% from 2% to 3%, along with a favorable currency impact from the weakening U.S. dollar.
Free cash flow guidance was increased to “at least $150 million,” up from the $130 million to $150 million range implied by cash flow line item guidance last quarter. After taking into account annual dividends of about $205 million, FCF guidance would imply largely neutral net debt during 2025, which would imply net leverage at the end of 2025 of about 4.75x, down slightly from 4.9x at the end of 2024.
The improvement in its global can shipment growth expectation was driven by an increase in its expectation for the Americas segment for “low to mid single digits” shipment growth from “at least low single digits.” Management cited its exposure to better-performing drinks categories in North America, such as energy drinks, sparkling water, and health and wellness categories, as the main driver of the improved outlook.
Management said it does not believe the tariff impact on AMP will be material given that (1) all of its North American can production is in the United States, (2) its customer contracts contain metal pass-through mechanisms to avoid any negative impact of higher domestic aluminum prices, (3) higher domestic aluminum prices only create a “de minimus” impact on the cost of aluminum can of less than one cent per can, suggesting little risk of lower-end demand from tariff impacts, and (4) it sources aluminum domestically and sells it domestically, avoiding direct tariff impact. These comments were consistent with its comments on its year-end call in February.
Ardagh Group reported “in-line” adjusted EBITDA for its glass packaging business and reiterated its full-year guidance. First-quarter European glass packaging demand was described as “subdued” and African demand as “off to a slow start.” In North America, beer and spirits demand was characterized as “solid,” while wine demand was “challenged.”
Regarding potential tariff impacts on the glass business, management said that most of its suppliers and customers are regionally balanced, with the potential for some pressure on exports by its European customers to the United States, suggesting the potential for at least some impact on Ardagh’s European glass business. Management noted, however, that with all of its North American glass operations in the United States, the tariffs could be supportive of its domestic operations.
Restricted group leverage remained at 7.6x, while management said “constructive” bondholder discussions are ongoing to achieve a sustainable capital structure.
Aluminum
Kaiser Aluminum reported first-quarter adjusted EBITDA up 35%, with management describing the results “as expected” or “maybe a little better.” It increased its full-year adjusted EBITDA guidance by about 5%, while maintaining its full-year FCF guidance.
As it outlined on its year-end conference call in February, management reiterated that it believes that Kaiser’s all-domestic operations are “well positioned” for tariffs, with increasing near-term demand for domestic products and the prospect of longer-term “reshoring” of industrial production.
Kaiser reiterated its longer-term outlook provided on its year-end conference call, which called for an “inflection” in its performance as its margin profile is “transformed” with an expected shift to higher-margin products, with longer-term increases in conversion revenue and margins implying an expectation of almost a doubling of adjusted EBITDA and a halving of its leverage ratio to its longer-term target range of 1.5x to 2.5x. Net leverage as of the end of the first quarter was 3.9x, down from 4.2x at the end of 2024
Alcoa had reported its first-quarter results the previous week. With most of its production in Canada, Alcoa said it is estimating a negative impact on its business of about $100 million annually from importing about 70% of its aluminum production from Canada.
In response to a conference call question about its efforts to lobby for tariff relief, management said that it continues to engage in discussions with both the United States and Canadian governments about the aluminum tariffs, outlining Alcoa’s view that the United States would continue to import a significant portion of its aluminum consumption even if all idled domestic capacity were to be restarted.
Further, management stated that construction of additional domestic capacity to displace all aluminum imports would take “many years” and require at least five or six new aluminum smelters, with additional energy requirements equivalent to almost seven new nuclear reactors, or more than 10 Hoover Dams, essentially outlining the infeasibility for the United States to become self-sufficient in aluminum production any time in the near-to-medium future.
Until additional domestic aluminum smelting capacity is built, management asserted, it believes that the most efficient aluminum supply continues to be from Canada, that tariffs represent a threat to U.S. industrial competitiveness, and that tariffs do not benefit domestic industry or its supply chains.