Survey Finds Precipitous Decline in Industrial Investor Optimism amid Renewed Demand Concerns; Those Expecting Broad-Based Softness Doubles QoQ

• 31% characterize current sentiment as Bullish or Neutral to Bullish, down from 68% captured last survey; more investors, 47%, say view is Neutral, up from 19%
• Similarly, just 16% describe executive tone as Bullish or Neutral to Bullish, down from 66% QoQ, with 63% now perceiving talk tracks as Neutral, up 40 pts
• 94% expect broad-based Industrial weakness, double the concentration registered last quarter
• 57% and 44% expect Q2’24 results to be In Line with consensus and sequentially, respectively; a slight majority, 54%, expect performances to be up YoY
• Reinvestment remains the preferred use of cash, with 65% in support of Maintaining growth capex levels; M&A continues to see increased support

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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^® flagship research publication, was conducted from June 14 to July 12, 2024, and is based on responses from 37 institutional investors and sell-side analysts globally who actively cover the Industrial Sector. The buy-side firms represented in our survey manage more than $320 billion in assets and have $47 billion invested in Industrials.

Following last quarter’s survey which found a jolt of optimism among respondents amid heightened anticipation of Industrial growth potential, the Voice of Investor^® captured in this survey registers a large pullback in sentiment to a more neutral stance overall. While outright bearishness remains limited, those expecting broad-based Industrial weakness doubles in concentration, and survey respondents voice increased concern over both underlying demand and the sustainability of margins/pricing power.

“With Industrial earnings on the horizon, our survey this quarter identifies growing investor unease and a meaningful downshift in sentiment following outsized optimism captured last quarter. Investor views and executive tone are now categorized as decidedly neutral amid escalating concerns over a sector-wide slowdown, with the level of bullishness captured at a 20-quarter low,” said Rebecca Corbin, Founder and CEO of Corbin Advisors. “Increasing apprehension over top- and bottom-line performances, compounded by heightened geopolitical concerns, have culminated in muted outlooks across nearly all Industrial sub-sectors that we track. Despite resurfacing concerns over growth and margins and a flurry of notable pre-announcements, expectations for Q2’24 results remain largely intact, with views that prints will be in line with both last quarter and consensus and that annual outlooks will hold. While bullish sentiment has come in based on deteriorating macro views, we foresee the potential for a higher number of companies to lower guidance than is currently expected amid signs of emerging supply chain and other operational issues, including labor productivity, as well as the continued impact of U.S. election uncertainty on customer spending. Leading topics of interest for earnings calls include margins and pricing power, order rate trends, and back half growth."

Notably, nearly all respondents, 94%, expect broad-based Industrial weakness, doubling in concentration QoQ. Moreover, 60% now expect 2024 Industrial organic growth to be lower than 2023, up from 27% QoQ, and those expecting a higher growth rate decline from 46% to 20%.

Continuing, more survey contributors anticipate decelerating order rate conditions over the next six months, and while 47% report Industrial companies within their coverage universe are still passing on cost/increasing price, this is down from the 76% registered in Q1’24. Amid these factors, apprehension over geopolitical risks more than triple QoQ.

"My sentiment has deteriorated a little from earlier in the year as the persistent higher interest rates seem to finally be influencing activity on a negative note. We've begun to see negative pre-announcements and/or that pricing is eroding from enough companies to know the environment is less robust,” commented a portfolio manager whose firm has $6.3 billion invested across the Industrial sector.

Reinvestment remains the preferred use of cash, with 65% in support of maintaining growth capex. As well, M&A continues to see increased backing in the #2 position, preferred by 51%, which represents an increase from 44% last quarter and 36% in Q4’23. However, those supporting Dry Powder, or conserving cash, soars from 5% to 32% QoQ.

Regarding industry sentiment, bears outweigh bulls across the majority of Industrial sub-sectors. In particular, pronounced bearish sentiment is most evident in Transportation, Ag, Autos, and Building Products. Conversely, Defense and Commercial Aero are the only sub-sectors to retain bulls QoQ. As far as geographic exposure, North America remains the regional darling for nine consecutive quarters, though at levels below prior survey findings, followed by APAC (ex-China) and Europe. China remains out of favor, garnering zero support as a compelling region for the second consecutive quarter, as risk aversion remains elevated.

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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