Corbin Advisors Releases
Q2’22 Inside the Buy-Side®
Industrial Sentiment Survey®
Industrial Investor Sentiment Warms QoQ and is Less Downbeat than Generalist Counterparts
- 39% describe sentiment as Neutral, up from 29% last quarter while those characterizing their view as Neutral to Bearish or Bearish falls to 38% from 52%, QoQ
- 50% classify executive tone as cautiously optimistic, up from 45% in QoQ, citing continued strong orders and backlogs; only 27% view leadership stances as downbeat, in line with last quarter
Views on sequential performance and guidance are mixed:
- 37% anticipate Better Than prior quarter earnings, up from 24% last quarter while 31% expect declines in the same period, up from 28%
- 50% expect industrials to lower EPS guidance and the same number to Maintain
More are expecting Margins and FCF to Worsen and companies to Lower profitability outlooks
- 76% report being significantly concerned or concerned about a recession in the next 6 to 12 months
Despite contraction concerns and given industrials’ strong balance sheets in general, the majority, 76%, favor reinvestment as the top use of cash, up from 56% QoQ
- Slightly more, 47%, are in favor of companies maintaining current levels of growth capex with 67% continuing to highlight Digitalization as a compelling investment theme
FARMINGTON, CT – July 21, 2022 – Corbin Advisors, a strategic consultancy accelerating value realization globally, today released its quarterly Industrial Sentiment Survey®. The survey, part of Corbin Advisors’ Inside The Buy-Side® flagship publication, is based on responses from 33 institutional investors and sell side analysts globally who actively cover the industrial sector. Buy side firms manage more than $1.1 trillion in assets and have ~$96 billion invested in industrials.
Following last quarter’s survey which found a significant contraction in positive industrial investor sentiment after six consecutive quarters of improving views, our survey this quarter identifies continued caution but less bearish stances quarter over quarter. Investors describing their sentiment as Neutral registers at 39%, up from 29% last quarter, while those Neutral to Bearish or Bearish falls to 38% from last quarter’s 52%, which was the highest level recorded since the onset of COVID-19.
As Q2’22 industrial earnings season gets underway, investors and analysts expect mixed performances and full year outlook announcements as they weigh continued strength in backlogs and orders with persistent inflation and supply chain headwinds, as well as increasing recessionary concerns. Specifically, 37% anticipate Q2 earnings to be Better Than last quarter’s print while 31% are expecting sequential declines. Similarly, expectations for guidance are mixed with 50% expecting companies to lower EPS guidance and the same number to maintain current outlooks. Views on top-line growth are also divided.
With 76% reporting concern about a recession, over 40% identify demand trends as a key area to address on earnings calls this quarter, surpassing all other topics with the exception of inflation and related pricing actions. Over the next six months, the majority expect Global Capex, Global PMI, U.S. Consumer Confidence, and U.S. Unemployment to Worsen.
Despite notable concern, the majority of surveyed industrial investors, 76%, favor reinvestment as the top use of cash at this time with slightly more encouraging companies maintain versus moderate growth capex levels (47% vs. 37%). While debt reduction is viewed as the lowest capital deployment priority, underscoring comfort with industrials’ balance sheets, debt level thresholds continue to grow more conservative with 90% preferring Net Debt-to-EBITDA levels of 2.0x or less.
Anders Roslund, Financial Analyst at Pareto Securities commented, “I expect supply chain disruptions to improve and I expect consumer demand to weaken but global capex to remain relatively high.”
“After a pronounced contraction in industrial investor sentiment last quarter where we saw the first signs of dominant angst, our survey finds continued cautious views but notably less downbeat than our broad-based generalist survey published last week. While Q2 should be a relatively strong quarter for industrials compared to the back half of the year, we expect to hear increasingly cautious tones from executives and more downward guides,” said Rebecca Corbin, Founder and CEO of Corbin Advisors. “This earnings season, questions again will center on inflation and supply chain constraints, as well as volume versus price as investors and analysts seek to get a read on demand sustainability. To that end, sequential order trends and backlog growth, as well as hiring activities amid broader corporate announcements of hiring freezes and layoffs, will be in focus. Over the balance of the year, in which the economy is expected to slow, investors will place increasing emphasis on margins and prioritize companies with well-positioned balance sheet and competitive advantage, as well as those that balance cost-cutting actions in the near-term with strategic capital deployment for long-term benefit.”
Supporting less downbeat views this quarter, 95% consider industrials under to fairly valued, indicating valuations are pricing in a recession. Auto sees an influx of bulls while Residential Construction, Metals & Mining and Building Products are the largest bear gainers.
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.
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