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

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Corbin Advisors Releases Q4’23 Inside The Buy-Side® Industrial Sentiment Survey®

Survey Finds Margins Remain Top of Mind, But Amid Expectations for a Lower Interest Rate Environment, Support for Funding Growth – Both Organic and M&A – Gains Ground

  • 42% of investors characterize their sentiment as Neutral, similar to last quarter and up significantly from just 17% in Q2’23
  • 48% describe executive tone as Neutral, up from 36% last quarter; positive stances less pronounced than in Q2’23
  • 52% and 70% expect Industrial Earnings to be In Line with prior quarter performances and consensus, respectively
  • Mixed views regarding Q4 KPIs; more anticipate Revenue and EPS to Worsen QoQ, while Operating Margins are expected to Stay the Same and FCF to Improve
  • Reinvestment reclaims the top spot as the preferred use of cash (71%), overtaking Debt Paydown (53%); notably, M&A (35%) sees a meaningful increase in support, nearly doubling QoQ
  • 94% expect broad-based industrial weakness with 75% either already seeing it or expecting weakness by the end of Q1’24
  • Demand/order trends (69%) and margins/pricing power (69%) are leading topics to address on upcoming earnings calls, followed by newcomer regional dynamics (28%)
  • Nearly all sub-industries register a net improvement in bullishness; Ag and Distribution are the largest bull gainers while Defense sees the highest level of bull erosion, and Non-Resi Construction is decidedly out of favor

FARMINGTON, CT – January 18, 2024 – 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 research publication, was conducted from December 4, 2023 to January 10, 2024, and is based on responses from 35 institutional investors and sell-side analysts globally who actively cover the Industrial sector. The buy-side firms represented in our survey manage more than $5.3 trillion in assets and have $456 billion invested in Industrials.

Beginning in Q1’23, our quarterly sentiment surveys have found a continuing easing of bearish industrial investor sentiment while at the same time, perceived executive tone has been commensurately characterized as less bullish. This quarter’s survey finds alignment of both investors and executives converging in more neutral territory amid a “mixed bag” of secular growth opportunities and margin performances across the sector. Heading into Q4’23 earnings season, investors expect sequential results to be In Line with last quarter and consensus estimates.

“Expectations for broad-based industrial weakness is a prominent theme throughout our survey, resulting in investors continuing to prioritize margins at higher levels than growth at this time,” said Rebecca Corbin, Founder and CEO of Corbin Advisors. “However, despite this acute focus on profitability, expectations for a lower interest rate environment have spurred notable appetite for growth initiatives, including a spike in support for reinvestment via growth capex and M&A. Notably, appetite for bolt-ons is meaningfully higher and tepidness toward large, transformational deals, sees a step back. While Q4 KPI performances are expected to be mixed, with margin growth a big question mark as destocking continues and pricing power wanes, most anticipate higher full-year guides relative to 2023 actuals — an indication of soft-landing expectations. Leading topics for executives to address on upcoming earnings calls include updates on demand and order trends, margins/pricing power, and, new this quarter, regional dynamics as macro/geopolitical conditions intensify globally. Our findings indicate investors are seeking strong secular growth attachment and diversified portfolios. China remains out of favor and an overhang for companies with exposure.”

Continuing, 9 in 10 investors expect broad-based industrial weakness with three-quarters already seeing or expecting to see weakness by the end of Q1. To that end, margins, interest rates, and a slowing economy/demand are the leading concerns identified.

“Over the last 12 months, most companies have been living off of backlog that became abnormally large during the pandemic and that has carried them through. They have gone through a period with generally weak orders and ISM has been below 50 for a year, so trends are decelerating. If the backlog continues to get worked down and you do not have the economy turning up in 2024, you are going to have more earnings pressure generally across most industrials, particularly with higher rates and a general lagged effect of monetary policies,” commented a portfolio manager whose firm has $19.6 billion invested across the industrial sector.

Despite this caution, investors are growing increasingly inclined toward prioritizing reinvestment at this time, cited as the leading preferred use of cash, while views toward debt paydown — still the second most preferred use — ebbed QoQ. Notably, 33% support Increasing current growth capex levels, up from 3% last quarter, while just 10% support Moderating/Reducing at this time, receding from 40%. Further, attitudes toward inorganic growth improve, with 35% now in favor of M&A and a massive 94% indicating openness toward bolt-on acquisitions, up from 79% QoQ.

Regarding industry sentiment, nearly all industrial sub-sectors register a net improvement in bullishness, with Ag, Distribution, and Non-Resi Construction seeing the biggest increases in favorability. Despite garnering the second-highest level of bullishness overall, Defense sees the largest level of bull erosion, while Non-Resi Construction remains decidedly out of favor. North America is the regional darling for the seventh consecutive quarter, while China sees zero support as a compelling region, a new survey low. Government policy, specifically attachment to the Bipartisan Infrastructure Bill and CHIPS Act, automation, and nearshoring/reshoring are seen as the most attractive industrial investment themes.

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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