Australian manufacturers see sharp drop in revenue, profitability amid Iran conflict shock– report

Key figures:

• Average revenue down 42% from Q3, down 44% on same quarter last year
• Average Profit margins plunge to 32%, lowest since 2018
• Stock on Hand (SOH) dropped to an average of $207k, down 56% on same quarter last year
• Manufacturers were buying significantly less raw product, dropping to an average of $240k, less than half of Q1 year and the lowest since 2018
• Lead times dropped to 14 days, well below 2025 averages 

Australian SMB manufacturers are facing plummeting revenue and profits as disruption from the Middle East conflict ripples through markets, with the worst likely yet to come. 

According to the latest Manufacturing Health Index from inventory management software provider Unleashed, revenue for the average Australian SMB manufacturer was down 42% in the first quarter of this year at $356k, from $619,183 in Q4 2025 and down 44% vs the same quarter last year.

The figures appear in Unleashed’s latest manufacturing report, based on data from more than 600 Australian firms across manufacturing categories such as food and beverage, clothing and fashion, and construction.

This drop in revenue was matched by sharp decline in Gross Margins (the percentage of revenue left over after a company’s direct costs have been subtracted) with the average manufacturer netting 32.8% in Q1 2026, down from 38.47% in Q425. This represents the lowest average profitability since Unleashed records began in 2018. 

In the lead up to 2026, manufacturers had been cautiously optimistic with strong revenues and healthy profit margins coupled with a lean, just in time approach to stock management, ordering as needed instead of building up large stockpiles. 

Stock on Hand (SOH) in Q1 2026 dropped to an average of $200,500 AUD as manufacturers ran down the warehouses, continuing the trend from Q4 2025 but in a starkly different global climate.

“The manufacturing base was heading toward a leaner model in 2025.” explains Unleashed’s Head of Product Jarrod Adam. 

“With recent events, manufacturers will now be taking a particularly cautious approach to replenishment and overall spending. If the disruptions continue into the weeks ahead further belt tightening could be expected”.

Peter Turner, Managing Director of Australian manufacturer ThinTanks, whose slimline rainwater tanks are exported to markets around the world, says sales have risen in recent months, but margins are coming under increasing pressure.

“In the past few months, sales have been increasing, but so have costs. As an oil-based product that we freight across Australia, our margins are under real pressure. That has meant pushing through price increases, but despite that, demand has held up well," said Turner. 

"It is difficult to know where things go from here. Our business runs on six to eight week lead times, so there is a lag before the numbers fully reflect what is happening. Any shift in the global outlook could have a significant impact, but we have also seen how quickly things can swing the other way. During Covid, we had our best year on record, as spending shifted from travel into home renovations.” 

Global shock rattles (almost) all sectors surveyed

The summer period is usually a standout for multiple sectors, particularly in recreation and hospitality, as Australian consumers raise their discretionary spend, but the handbrake has been pulled up following last year's spending spree.

Beverage manufacturers finished 2025 strong with average revenue of $627,422 but that momentum stalled in Q1, down to $341,851 - a drop of 45% QoQ and a marked decline from the same period last year where revenue sat at $664,992.

The trend continued elsewhere in retail spend, with Clothing, Footwear & Accessories manufacturers seeing a marked drop in revenue to $173,320 from $414,065 in the previous quarter, and $436,348 in Q1 of last year.

One relative bright spot in the results came from Food manufacturers, who despite seeing a similar drop in revenue numbers QoQ (down from $709,831 to $452,846) saw an increase in margin. Gross Margin in Q126 was up over 10%, from 23.47% at the end of last year to 35.66%  

“It’s good to see manufacturers focus on what they can control and food manufacturers are ensuring they aren’t sitting on mountains of cash tied up in inventory which is helping their margin resilience,” says Adam. 

Construction Manufacturing, which often closely tracks the wider economy, had its worst revenue results since 2020, a drop in average revenue from $716,237 in Q425 to $391,941. Compared to the same quarter last year, revenue is down 54%

The Electrical and Electronic Components sector, which has been a standout in previous reports, netted averaged revenue of $493,912 in Q1 2026, down from $626,185 in Q4 2025 and down over 50% YoY.

“Industries with high input costs are where we would expect to see the sting of rising energy costs early and that seems to be borne out by the survey," says Adam.

While supply chain disruption is widely expected, it has yet to show up in the period covered by the data. 

Lead times were significantly down, to an average of two weeks - down from 17 days in the previous quarter. However supply chains may grow volatile in coming months and this number is likely to increase. 

Reflecting widespread uncertainty, manufacturers were ordering significantly less raw materials. Australian manufacturers ordered $240,182 of raw materials, down from $415,212 in Q4 2025 and $495,297 in the same quarter last year.  

Unleashed outlook for 2026

The conflict in the Middle East complicates forecasts and how quickly the conflict resolves will be the deciding factor but a certain amount of disruption is now baked in. 

Energy price increases, with Brent Crude trading consistently over $100 US a barrel, are eating into material input and supply chain costs, and eroding margins. 

Shocks are being most acutely felt in major suppliers across Asia which produce component inputs to multiple sectors, particularly electrical components. The trend towards stable and low lead times could also be affected as shipping firms respond. 

Interest rates will continue to play a central role in manufacturing across all sectors. The Reserve Bank of Australia (RBA) raised the cash rate by 25 basis points to 4.1% at their March 2026 meeting to combat high inflation. 

This decision follows a previous hike in February, driven by concerns that inflation is too high, with rates likely to remain elevated due to potential revisions to inflation forecasts, with rate rises on May 7 and more forecast throughout the calendar year.

Whereas previously the RBA expected inflation to peak in mid-2026 (potentially reaching 4.2% headline) before finally moderating back toward the 2.5% midpoint by mid-2028, inflation is now expected to stay higher for longer. 

Renewed pressure on energy and supply costs are likely to accelerate an existing imperative for firms to evolve beyond surviving high costs towards scaling efficient operations. 

Central to this new growth phase is the use of real-time data to navigate increasingly tight purchasing cycles.

As Adam notes: “The challenge for 2026 is uncertainty. Manufacturers must leverage technology to manage rising costs and mitigate the challenges which are out of their control.