Q1'24 Inside The Buy-Side® Earnings Primer®

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Corbin Advisors Releases Q3’23 Inside The Buy-Side® Earnings Primer®

Investor Sentiment Reflects Increasing Caution Heading into Q3 Amid Continued Growth Concerns with Margins Prioritized; Geopolitical Risk — China Specifically — Dominates Mindshare

  • 37% report current sentiment as Neutral, relatively unchanged QoQ, with fewer characterizing views as outright Bullish
  • Executive tone continues to be perceived as less optimistic, from 46% Neutral to Bullish or Bullish in Q1 to 32% currently
  • 49% expect results to come In Line with consensus, with significantly fewer expecting beats QoQ
  • 71% of investors are prioritizing margins over growth at this time, all else equal
  • 66% continue to expect a U.S. recession, below the record level of 93% in Q2’22
  • 71% point to Geopolitics as the leading concern, more than doubling from 34% last quarter, with 50% unaidedly citing caution toward China
  • Bearish views on China’s economy over the next six months have reached the highest recorded level, and 77% assign a High or Very High level of risk to companies with exposure, above the 1-year average of 74%
  • Debt paydown remains the top preferred use of cash by 72%, a new survey record, followed by reinvestment, which sees less support at 36% versus 43% QoQ

HARTFORD, CT – October 12, 2023 – Corbin Advisors, a strategic consultancy accelerating value realization globally, today released its quarterly Earnings Primer®, which captures trends in institutional investor sentiment. The survey, which marks the 56th issue of Inside The Buy-Side®, was conducted from August 24 to October 3, 2023, and is based on responses from 80 institutional investors and sell-side analysts globally, representing ~$7 trillion in equity assets under management.

Following last quarter’s survey that found sentiment converging in a more neutral outlook collectively as bearish investor views receded at the same time as the tone of management was perceived as exhibiting increased caution, the Voice of Investor® captured in this quarter’s survey continues that trend, but with slightly more caution. As we head into Q3’23 earnings season, sequential performance expectations are divided following a largely beat-and-raise Q2’23, mounting geopolitical risks, and persistent slowing growth concerns.

Rebecca Corbin, Founder and CEO of Corbin Advisors, commented, “Annual top- and bottom-line guides were broadly raised following better-than-expected second quarter results, and, along with them, consensus estimates. For the upcoming quarter, some of the issues to watch remain the same — namely, persistent inflation, waning demand and pricing power amid elongated purchasing patterns, and margin and expense management. However, what we see in our proprietary data is that geopolitical risk now dominates mindshare, escalating to 71% expressing this as a concern from just 34% last quarter— and that was before the events of the past week in the Middle East. All the while, consumer metrics continue to deteriorate at the margin, with the knock-on effects of student loan resumption on the horizon. Still, even with some of the more pervasive economic and geopolitical factors impacting near-term sentiment, there are also continued pockets of strength and optimism that collectively contribute to an increasingly neutral stance. Technology and innovation — including the promise of AI — along with secular growth trends such as the energy transition and government infrastructure spending have padded outright bearish investor sentiment for now. With a little less than three months to go to close out this year, analyst and investor questions will jump to 2024 and those eager attempts should be thoughtfully redirected given increased uncertainty and economic landscape churn. Our results show investors are most interested in the bottom-line at this time, and reinforcing the long-term growth strategy and near-term plans to preserve profitability will serve to bolster investor confidence.”

Leading topics for executives to address on upcoming earnings calls include margins, which 71% of investment professionals report prioritizing over growth at this time, updates on inflation and pricing power, demand trends, and, new this quarter, cash flow.

As mentioned, sequential performance expectations among participants are split, with a roughly equal percentage anticipating results to be In Line, Better Than, or Worse Than last quarter.

Notably, sales are expected to fair better than other performance metrics with 44% modeling Improving revenue growth as companies continue to feed off backlogs. Views on margins largely mirror last quarter’s expectations for continued pressure. EPS and FCF register parallel views, with nearly equal numbers in the Improving and Worsening camps. Across all KPIs, a majority expect annual guidance to be Maintained. When looking at those predicting companies to Raise or Lower outlooks, more are in the latter camp with one-quarter to one-third seeing that scenario play out across margins, EPS, and FCF.

Reflecting persistent recessionary fears, shared by 66% of respondents and increasingly projected to occur in 2024, debt paydown remains the most supported use of cash at 72%, a new survey record, with 74% preferring a Net Debt-to-EBITDA level of 2.0x or lower across nearly all sectors. Continuing, reinvestment, while still the second most preferred use of cash, ebbed QoQ. Drilling down, 36% support Maintaining current levels, down from 49% just two quarters ago, while more, 46%, recommend Moderating or Reducing spend.

Scott Letier, Managing Director and Chief Investment Officer of Deason Capital Services, commented, “My sentiment is neutral to bearish. Things are beginning to slow. Inflation and rates are dragging on and tugging at consumers who are beginning to crack around the edges; consumer discretionary spending is slowing.”

Topping the concerns big board this quarter is geopolitical risk, identified by over 7 in 10 participants more than doubled from the 34% registered last quarter. Notably, half of all commentary centers around China, unprompted, while 77% assign a High or Very High level of risk to companies with business/operational exposure to the country and 65% anticipate the Chinese economy to worsen over the next six months — a survey high.

Regarding broader views on global economies, most Western countries are expected to Worsen for the remainder of 2023 and into 2024, led by the UK and Canada, but, notably, India and Mexico are expected to Improve.

Turning to sector sentiment, Tech remains in the top spot while bulls completely abandon Consumer Discretionary and bears go back for seconds in Building Products after retreating last quarter. Energy sees the biggest relative improvement, while REITs remain out of favor despite some thawing of record bearish sentiment seen in Q1’23.

About Corbin Advisors

Since 2007, Corbin Advisors has tracked investor sentiment on a quarterly basis. Access Inside The Buy-Side® and other research on real-time investor sentiment, IR best practices and case studies at corbinadvisors.com.

Corbin is a strategic consultancy accelerating value realization globally. We engage deeply with our clients to assess, architect, activate, and accelerate value realization, delivering research-based insights and execution excellence through a cultivated and caring team of experts with deep sector and situational experience, a best practice approach, and an outperformance mindset.

Inside The Buy-Side®, our industry-leading research publication, is covered by news affiliates globally and regularly featured on CNBC.

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All Rights Reserved.
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