Corbin Advisors Releases Q2’23 Inside The Buy-Side® Industrial Sentiment Survey™

Survey Finds Investors Divided on Sentiment but Aligned on Perceived Executive Tone – Largely Characterized as More Upbeat – And Major Shifts in Sub-sector Views

• 59% describe executive tone as Neutral to Bullish or Bullish, up from 52% last quarter and the highest level since Q4’21
• Conversely, 45% of investors self-describe sentiment as Neutral to Bearish or Bearish, slightly up QoQ; those in the Neutral to Bullish or Bullish camp also see a rise, to 38%
• A majority, 50%+, expect Q2 FCF and EPS to Improve amid easing skepticism QoQ with significantly fewer anticipating Worsening Margins; Revenue predictions are also more optimistic
• Reinvestment shifts to the top preferred cash usage, surpassing debt paydown, while bolt-on acquisitions continue to garner support
• While 92% expect broad-based industrial weakness in 2023 and beyond, predictions for annual industrial organic growth improve 90 bps to 3.8% QoQ
• Defense, Commercial Aerospace, and Water top the bull chart while Transportation garners the most bears and Agriculture falls out of favor

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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^® publication, is based on responses from 35 institutional investors and sell side analysts globally who actively cover the Industrial sector. Buy side firms manage more than $2.0 trillion in assets and have ~$205 billion invested in Industrials.

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“Industrial investors largely expect to see improvement across all KPIs in the second quarter, specifically revenue, margins, EPS, and FCF, with views bolstered by what is perceived as increasingly more positive executive tone,” said Rebecca Corbin, Founder and CEO of Corbin Advisors. “Despite the largely optimistic view on Q2 industrial prints, the majority of survey respondents anticipate companies will maintain annual guides, reflecting investor angst about the second half and continued slowing industrial growth. Still, focus remains on long term positioning with increasing support for reinvestment and bolt-on acquisitions. Outsized FCF generation and above-market growth remain the most compelling investment themes while margin expansion comes in third with the largest increase in support. Meaningful shifts in input costs, slower than expected economic uptake in China, uncertainty around inventory and destocking actions, and a higher interest rate environment have created a lot of complexity. Leading topics for executives to address on calls this earnings season include demand and order trends, which also register as the top concerns this survey, margins and input costs, pricing power, and capital allocation priorities in the current environment.”

Following last quarter’s survey that identified continued diverging perspectives among surveyed industrial investors and analysts and executive tone that was characterized as more positive, this quarter’s survey finds those trends continuing and even more pronounced. Notably, 62% describe executive tone as Neutral to Bullish or Bullish, up from 52% last quarter and the highest level since Q4’21. Meanwhile, 45% of investors self-describe sentiment as Neutral to Bearish or Bearish, up from 37% QoQ while those in the Neutral to Bullish or Bullish camp also see a slight rise to 38% from 35%, underscoring continued bifurcation. Across three quarters, outright bearishness has eased.

“Management is cautiously bullish, but it depends on where you are. If you are tied to the themes of the Inflation Reduction Act, Infrastructure Act, CHIPS Act, all the reshoring, auto spend, and electrification, I think you sound pretty good. If you are a company that sells parts that go into car washes and random industrial stuff, or you are selling chemicals where you have pricing going crazy and there’s excess capacity, then you don’t sound too good. There are definitely two worlds in industrials right now,” commented one Security Analyst.

Regarding Q2 earnings season, investor expectations are for sustained or better sequential performances, with most anticipating consensus meets and beats. Specifically, a majority, 50%+, expect Q2 FCF and EPS to Improve amid easing skepticism QoQ with significantly fewer anticipating Worsening Margins. Revenue predictions are also optimistic, with more, 38%, anticipating Improving top-line performances.

Despite expectations for a strong print, nine in 10 investors expect broad-based industrial weakness. While 71% are already seeing or expect to see weakness in 2023, predictions are increasingly moving beyond year end, as 21% now anticipate timing coinciding with 2024, up from 0% last quarter. To that end, Demand and Order Trends is cited as the leading concern, and Global Capex and Consumer Confidence are seen as the most challenged indicators looking ahead, with 41% and 55% expecting Worsening conditions over the next six months, respectively.

For companies with stronger balance sheets, investors are growing increasingly comfortable with allocating capital in support of growth, with 73% citing reinvestment as the leading preferred cash usage, surpassing debt paydown, while bolt-on acquisitions continue to garner increased support.

Regarding sub-sector sentiment, Defense, Commercial Aerospace, and Water capture the most upbeat views. Chemicals and Building Products shake off bears and see the largest increases in positive support while shade falls on Ag and bears topple into Transportation, representing its highest level of downbeat sentiment since the onset of the pandemic.

About Corbin Advisors

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.

To learn more about us and our impact, visit CorbinAdvisors.com

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