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IF IT’S CORBIN, IT’S ACTIONABLE
2Q18 Earnings Primer Investor Sentiment Survey July 11, 2018 CORBINADVISORS.COM
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Inside The Buy-sideÂŽ 2Q18 Earnings Primer
Issue Date: July 11, 2018
For over a decade, we have surveyed global investors and analysts on the equity markets, world economies and business climate. We share our research broadly with corporate executives, investor relations (IR) professionals and the financial community.
Market Performance* 2Q18
YTD
(0.5%)
(2.0%)
NASDAQ
6.3%
8.1%
S&P 500
2.9%
1.7%
Russell 2000
8.6%
7.0%
DJIA
Survey Scope: 87 participants globally, comprising 68% buy side and 32% sell side; assets under management total ~$1.0 trillion Survey Timeframe: June 5 – 26, 2018
* As of Jun. 29, 2018
By Type Generalist Multi Industrials Financials
By Investment Style
71%
Core Growth
10% 2%
1
10%
GARP Europe
5% 2%
Healthcare
1%
Energy
1%
IT
1%
30% 26%
N. America
9%
Cons. Disc.
1 For
By Region
34%
54%
Asia/Pacific Latin America
multiple coverage, sectors include: Consumer Staples, REITs, Telecom and Utilities CORBINADVISORS.COM CORBINADVISORS.COM
Hedge Fund
21%
Core Value VC/Private Equity
14% 5%
Deep Value
2%
Yield
2%
2
Word Cloud: Frequency of Occurrence
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Another Strong Quarter Expected as Corporations Slash through Policy Thicket; Continued Gradual Erosion of Positive Sentiment is Noted but Don’t Blink Yet While Positive Sentiment is Off Jan. 2018 Peak, Surveyed Investors Can’t Shake Off That “G-Thang” (Growth!)
#1 and Expect Another Strong Quarter
45% expect results to be Better Than consensus estimates, generally in line with last quarter views, while 55% continue to expect sequential improvement
Organic Growth, EPS and Cash Flow largely expected to Improve QoQ but at slightly muted levels
Investor sentiment remains elevated with 64% describing their stance as Neutral to Bullish to Bullish while outright bears retreat; executive tone is also described as slightly rosier
#2 Investors Are Well-Aware of the Headwinds But Remain Committed to Equity Markets…for Now
Nearly 80% express Moderate to High concern about tariffs and trade wars, marking the second consecutive quarter in which both were cited as leading, unaided concerns; still, the majority are confident in companies’ ability to largely offset cost inflation and/or tariff impacts through pricing actions
All regions are expected to cool off and for the first time since Sep. 2016, neither the U.S. nor Eurozone is in the top two expected to improve; India and SE Asia take the lead
Despite these headwinds, fewer than 50% classify U.S. equities as Overvalued, a decrease from 57% sequentially; additionally, 35% see room for expansion, compared to 22% last quarter
70% report holding steady or buying, a slight uptick from last quarter, while outright sellers decreased
#3 As the Cycle Grows Longer in the Tooth, Gradual Sentiment Erosion Markers Emerge but There is Room to Go
In line with the prior quarter, 80% of investors believe we are Mid-to-Late to Late in the economic cycle; the majority, 55%, believe we will peak in 2019 or 2020
This marks the second consecutive quarter of fewer investors expecting sequential earnings improvement, down from an all-time high of 72% in Jan. 2018
Those expecting Worse Than consensus performance increase for the third consecutive survey
Views that Organic Growth will Improve erode for the third consecutive quarter CORBINADVISORS.COM CORBINADVISORS.COM
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When the Going Gets Tough…Another Strong Quarter is Expected Despite Increasing Headwinds That Continue to Erode Annual Guidance Conservatism Expectations Regarding 2Q18 Earnings Performance Relative to Consensus
Economic Data Consumer Confidence Tax Reform
Jun '17 Sep '17 Dec '17
36%
39%
43% 43% 45%
Tax Reform Oil Prices 52% 49% 50% 48% 43%
Mar '18
Input Costs
Jun '18 15%
11% 5%
Better Than
55%
Expect Sequential Improvement
In Line
88%
vs. 60% Last Quarter
9%
12%
Worse Than
Expect In Line to Better Than Consensus Results vs. 91% Last Quarter
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Enthusiasm Regarding Core Performance Remains Strong but at Slightly Less Optimistic Levels…Soft Landing? KPI Trends – Expectations Organic Growth
EPS
61% 46%
54% 50%
68% 68% 59%
46% 35%
39% 29% 17% 8%
Improving
64%
Staying the Same
27% 26% 17%
11%
52%
57%
4%
Worsening
Improving
Staying the Same
59%
28%
40%
35%
30% 15%
53%
Staying the Same
Worsening
47% 45%
29% 29%
24% 26%
15% 14%
11%
3% Improving
8%
Operating Margins
51% 33% 35%
15%
14% 6%
Cash Flow 62%
28%
Improving
Worsening
Sep '17
Dec '17
Mar '18
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Staying the Same
7%
Worsening
Jun '18 6
Commentary on Earnings Expectations vs. Consensus Better Than – 45%
In Line – 43%
Worse Than – 12%
“Momentum in economic data and consumer expectations post-tax cuts.”
“Taxes.” Buy Side, IT, N. America
Buy Side, Generalist, N. America
“Tax reductions and buybacks.” Buy
“Higher costs (interest rates, labor, materials) and slower international growth.” Buy Side, Generalist, N. America
Side, Generalist, Europe
“Several cycles (e.g., Ag, Energy) are turning upward simultaneously. Many U.S. companies have fared well during the down cycle and will be in great shape as conditions improve.” Buy Side,
“For some sectors, higher oil prices and overall good global growth sentiment with high consumer confidence.” Buy Side, Generalist, Europe
“Slowdown in growth plus rising oil prices.” Buy Side, Generalist, N. America “Currency, inflation and oil prices.” Buy Side, Generalist, Europe
Generalist, N. America
“Currencies, PMI and oil.” Buy Side, “Tax cuts and consumer sentiment.” Buy
Generalist, Europe
Side, Financials, N. America
“Coming from a high level and currency and trade issues.” Buy Side, Generalist, Europe
“Good macro environment.” Buy Side,
“Leading macro pointing to growth slowing, especially in Europe, China, UK, Nordics and Swiss.” Buy Side,
Generalist, Europe
“Price increases taking effect to offset raw material cost inflation.” Sell Side,
Generalist, Europe
Industrials, N. America
“Tariffs add to yet increasing input prices and accelerating salaries.” Sell Side,
“Economy remains strong for now.”
Generalist, Europe
Sell Side, Telecom, Europe
“Improvement in rural consumption and stable demand environment will drive the performance of consumer goods.” Sell Side, Multi, Asia
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Topics of Interest for 2Q18 Earnings Calls
1
Ability to Offset Rising Input Costs through Pricing
2
Trade War Impact
3
Capex
Out of N. America
Out of Europe
“Organic growth expectations, changes in capital plans or capital deployment and post-tax reform.” Buy Side, Generalist
“Interest rate perspectives and margins.” Buy Side, Generalist “Higher input costs and FX implications.” Buy Side, Generalist
“Peak earnings concerns are foolish. Would like to hear management assure the Street that business is pretty good.”
“Deleveraging balance sheets.” Buy Side, Generalist
Buy Side, Generalist
“Pricing power to offset higher costs.” Buy Side, Generalist “Global trends in organic consumer activity.” Buy Side,
“Capex and increased productivity.” Buy Side, Generalist “Trade wars.” Sell Side, Telecom
Generalist
“Revenue growth, margins and capex.” Sell Side, Financials
“Operating margins.” Buy Side, Generalist
Out of Asia
“Pricing power, margins, international sales and wage pressures.” Buy Side, Generalist
“Input costs.” Sell Side, Multi
“Capex outlook.” Buy Side, Generalist
“Improvement in demand environment and input cost inflation.” Sell Side, Multi
“Demand, pricing and inflation.” Buy Side, Generalist “Wages, hiring, capital efficiencies, refinancing prospects and other input costs.” Sell Side, Cons. Discretionary “Freight costs and supply, supply chain logistics, raw material cost and pricing to offset.” Sell Side, Industrials
“Capex cycle, AI in business processes and trade war impact.” Sell Side, Multi “Readiness for economic downturn.” Sell Side, Multi “Interest rates.” Sell Side, Multi
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Get While the Gettin’s Good…Investor Sentiment and Management Tone Holding Steady Despite Inflation, Interest Rate Hikes and Trade War Clouds
Investor Sentiment
66%
22%
21%
Management Tone
64%
75%
78% 27%
29%
48%
49%
Bullish Neutral to Bullish 44%
43%
Neutral Neutral to Bearish Bearish
12%
14%
15%
21%
22%
16%
7%
1%
3%
5% 1%
Mar '18
Jun '18
Mar '18
Jun '18
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Commentary on Sentiment Drivers Bullish – 21%
“GDP performance.” Sell Side, Financials, Europe
“Business development exceeding expectations. Investment in technology and physical plants is expected to increase productivity, revenue, as well as earnings.” Buy Side, Generalist, N. America
“2017 was year of events, including implementation of Goods and Services Tax (GST), affecting the performance of companies in short span. Improving macro environment, especially in rural India, is driving sentiment.” Sell Side,
“Earnings.” Buy Side, Financials, N. America
Multi, Asia
“Orders, positive economic data.” Sell Side, Industrials,
Neutral – 14%
N. America
“A better perspective for the consummation in Mexico and other countries.” Sell Side, Multi, Latin America
“Slowing earnings growth.” Buy Side, Generalist, N. America
Neutral to Bullish – 43%
“I’m concerned with the market’s valuation and the length of the economic cycle, which could turn down next year as interest rates continue to rise.” Sell Side, Telecom, Europe
“Employment, de-regulation and consumers.” Buy Side,
“Many unexpected factors, like trade war.” Sell Side, Multi,
Generalist, N. America
Asia
“Headwinds to growth exist but have surprisingly been muted thus far.” Buy Side, Generalist, N. America
Neutral to Bearish – 21%
“Some concern over geopolitical issues near-term and tariffs.” Buy Side, Generalist, N. America
“Macro and politics and international.” Buy Side, IT, N. America
“Commodity inflation and trade wars.” Sell Side, Generalist, “Some of the hurdles of the last semester seem to be over.”
N. America
Buy Side, Generalist, Europe
“The party is almost over.” Sell Side, Multi, Asia “Trade policy fears.” Sell Side, Generalist, N. America “Global economy.” Sell Side, Generalist, Europe * Bearish (7%)
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Majority Expect U.S. GDP of 2.5% - 3.0% While Predictions of the Cycle Continue to Suggest There’s More Gas in the Tank…Giddy Up! Where Are We in the Economic Cycle?
What is Your Prediction for 2018 U.S. GDP Growth?
55% 48%48%
59% 30%32% 26%
33%
17% 14% 13% 1% 0% 0%
26%
Early
5% 5% 6% Early-toMid
Mid
Dec '17
Mid-toLate
Mar '18
Late
Jun '18
When Do You Think We Will Peak? 10%
10%
42%
10%
30%
6% 4%
17% 17%16%
1% 1.0%
25% 19% 10% 9% 12%
NA 1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
I Do Not Pay Attention to GDP
Already Peaked
0% 2018
2019
2020
Mar '18 CORBINADVISORS.COM CORBINADVISORS.COM
2021
2022
0%
3%
Beyond 2022
Jun '18 11
Trade Wars Remain Top Concern While Majority Are Confident That Companies Can Offset Inflation…How Quickly Can They Recoup the Cost? Concern Levels Trade Wars Mar '18
26%
Jun '18
22%
22%
26%
No Concern
79%
Rising Input Costs 52%
Mar '18
52%
Jun '18 10%
Moderate
High
Express Moderate to High Concern about Tariffs
Jun '18
49%
36% No Concern
64%
40%
55%
No Concern
61%
37%
35% Moderate
High
Are Somewhat to Very Confident in Companies’ Ability to Largely Offset Cost Inflation and/or Tariff Impacts through Pricing Actions
Volatile FX Mar '18
23%
Rising Interest Rates 36%
40% Moderate
Mar '18
15%
Jun '18
24% High
Express Moderate to High Concern with FX, a 13pt Increase, Sequentially
30%
33% No Concern
82% CORBINADVISORS.COM CORBINADVISORS.COM
36%
40% Moderate
34%
27% High
Expect YE 2018 Fed Funds Rate to be 2.0% - 2.25%; Currently at 1.75% 12
Top Unaided Concerns from around the Globe
1
Trade Wars
2
3
Inflation
Interest Rate Hikes
Out of N. America
Out of Europe
“Input cost inflation underestimated, drives 2018 expectations lower. Sustained, counter-trend, stronger dollar and geopolitical.”
“Financial turbulence, Italian politics and trade war.” Buy Side, Generalist
Buy Side, Generalist
“Higher interest rates, tariffs and trade war.” Buy Side, Generalist
“Eurozone currency community, trade war and Central bank rates (Eurozone).” Buy Side, Generalist
“Domestic skilled labor shortage/wage inflation. Federal Reserve moves the Fed Funds Rate too quickly. War with China.” Buy
“Eurozone and Italy crisis, policy mistakes by Central Banks and EMs (Indonesia, Brazil, Turkey).” Buy Side, Generalist
Side, Generalist
“Higher input costs, trade wars and hiccup in China.” Buy Side, Generalist
“Higher-than-expected inflation, higher input costs leading to margin pressure, market noise due to Trump actions and Italy combined with poor liquidity during the summer.” Buy Side, Multi
“Trade, nationalism in Eurozone and inflation in the U.S.” Buy Side, Generalist
Out of Asia
“Tariffs and trade wars. Deterioration in relations with Iran and Russia. Rising interest rates.” Buy Side, Generalist
“Rising crude oil prices, sustained slowdown in Europe and volatile currency movement.” Sell Side, Multi
“Inflationary pressures; interest rates; trade tensions impact on sentiment/risk appetite.” Buy Side, Generalist
“Foreign exchange rate, interest rates and protectionism.” Sell
“Lack of experience in the Treasury and Fed and an unpredictable president: inflation triggering an interest rate overshoot that chokes off growth. Excessive wage growth leading to inflation due to tight labor markets.” Sell Side, Generalist
Side, Multi
“Trade war, rising oil prices and liquidity crunch.” Sell Side, Multi
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All Regions See Eroding Sentiment Regarding Growth over Next Six Months; for the First Time Since Sep. 2016, Neither U.S. nor Eurozone among Top Two Global Economy Expectations over the Next Six Months
India
42%
45%
13%
-7 pts
+1 pt
Southeast Asia
41%
46%
13%
-6 pts
+6 pts
U.S.
39%
45%
16%
-20 pts
+2 pts
Brazil
34%
40%
26%
-14 pts
+4 pts
Eurozone
33%
36%
31%
-28 pts
+21 pts
Latin America
32%
47%
21%
-3 pts Japan
-1 pt 24%
64%
12%
-4 pts Mexico
-2 pts 23%
49%
28%
-2 pts China
UNCH 20%
48%
32%
-3 pts
+9 pts Improving
Staying The Same CORBINADVISORS.COM CORBINADVISORS.COM
Worsening
14
Despite Headwinds, More Runway Seen as Investors Increasingly Expect U.S. Equity Valuations to Expand U.S. Equity Valuation Classification Jun '17 8%
45%
QoQ Investment Trends
47% 43%
Sep '17 8%
48%
44%
39% 36%
Dec '17 5%
39%
56%
Mar '18 1%
42%
57%
Jun '18 4%
48% Under
32%
31%31%
18%18%18%
48% Fairly
14% 11%
Over 6%
2018 U.S. Equity Valuation Expectations
Mar '18
23%
42%
35%
1% 1% 1% Net Buyer
Net Seller Dec '17
Jun '18
35%
43%
Expand
Remain Flat
Holding
Mar '18
Rotating
Liquidating
Jun '18
22% Contract CORBINADVISORS.COM CORBINADVISORS.COM
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Views on Global Capex Expansion Soften Somewhat but Remain Elevated and Oil & Gas Still Predicted to Strengthen Expectations over the Next Six Months
Global Capex
56%
34%
10% +8 pts
-11 pts Oil & Gas Markets
49%
41%
10%
+1 pt
-4 pts
Non-Resi Const.
35%
49%
16%
+5 pts
+3 pts
Resi Const.
34%
46%
20%
UNCH Consumer Confidence
+6 pts 25%
50%
25% +8 pts
-10 pts Global PMI
24%
49%
27% +5 pts
-5 pts Input Costs/Inflation
20%
31%
49%
+2 pts
-4 pts Improving
Staying the Same CORBINADVISORS.COM CORBINADVISORS.COM
Worsening
16
Few Significant Shifts in Sentiment as Investors Stick to Their Bets Ahead of Earnings Season
61% 67%
Technology
58% 57%
Financials
34% 42%
Healthcare
34% 40%
Mar '18
31% 45% 21% 30% 24% 22%
Building Products
22% 18%
Energy
29% 25%
Industrials
46%
Cons. Staples
32% 37%
Biotechnology
38%
Telecom
43%
Cons. Disc.
55%
REITs
34%
Energy
47%
Utilities
21% 16%
Industrials
Jun '18
Mar '18
Energy and Consumer Discretionary See Largest Positive Shifts Due to Rising Oil Prices and Increasing Confidence, Respectively
Jun '18
Utilities and REITs Remain Out of Favor and Have Garnered Bear Top Spots Since Dec. 2016; Telecom Sees Sharp Increase in Negative Sentiment
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About Us Our Passion Is Creating Value for Public Companies We are a catalyst – an investor relations (IR) advisory firm that partners with management teams to drive long-term shareholder value. We bring third-party objectivity as well as best practice knowledge and collaborate with our clients to execute a sound, effective investor communication and engagement strategy. Our proven methodology, proprietary analytics database, trusted reputation and in-depth experience generate unique insights. This marriage of research and rigor delivers comprehensive, actionable recommendations for internal and external value creation. We tailor strategies that enable high-impact decision making, secure maximum investor mindshare and ultimately create long-term shareholder value. From research-based insights to actionable strategies that differentiate our clients, Corbin unlocks thoughtful, positive change. We start by asking the right questions and end with providing actionable counsel that drives results.
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