2Q19 Earnings Primer

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IF IT’S CORBIN, IT’S ACTIONABLE

2Q19 Earnings Primer Investor Sentiment Survey July 12, 2019 CORBINADVISORS.COM

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Inside The Buy-side® 2Q19 Earnings Primer

Issue Date: July 12, 2019

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

Survey Scope: 84 participants globally, comprising 64% buy side and 36% sell side; assets under management total ~$2.3 trillion Survey Timeframe: Jun. 14 – 28, 2019

2Q19

YTD 1

DJIA

2.6%

14.0%

NASDAQ

3.6%

20.7%

S&P 500

3.8%

17.3%

Russell 2000

1.7%

16.2%

1

By Type

As of 6’28’19

By Region

Generalist

By Investment Style

53%

Multi

27%

Cons. Discretionary

4%

Healthcare

4%

Industrials

4%

Materials

2%

REITs

2%

Technology

2%

Energy

1%

Financials

1%

Core Growth 18%

Core Value North America

26%

26%

56%

24%

GARP

17%

EMEA

Hedge Fund

12%

APAC

VC/Private Equity

12%

Deep Value

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5%

Inc. Value/Yield

2%

Other

2%

2

Word Cloud: Frequency of Occurrence Investor Feedback Indicates Increasingly Cautious Sentiment, as a Gradual Economic Slowdown is Expected; Trade War Concerns Loom Large

1Q 2019

2Q 2019

Key: Underlying Sentiment

  

Positive Neutral Negative CORBINADVISORS.COM CORBINADVISORS.COM

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Cautious Investor Sentiment on the Rise as Slowing Growth Materializes; Markets Priced for Perfection Despite Expectations for Deceleration Survey Findings Indicate Increased Recognition of Slowing Growth but Pace of Slowdown is Expected to be

#1 Measured; Few Calling for a Recession in the Next 12 Months 

41% expect earnings to Decrease sequentially and 43% believe earnings will be Worse Than consensus, the highest level registered since Dec. 2015



All KPIs – Organic Growth, EPS, Margins and Cash Flow – are expected to Stay the Same or Worsen QoQ



62% note the U.S. economy is Losing Steam; still, 72% Do Not believe we will enter a recession in the next 12 months



78% anticipate 2019 U.S. GDP growth of ≤2.5%, in line with last quarter



80% note they are placing More Emphasis on balance sheet strength versus a year ago, up from 70% last quarter; debt paydown is cited as a top use of excess free cash by 52% of participants Sentiment More Cautious amid Slowdown and an Increase in Concerns Registered but Low Interest Rate Environment

#2 and Pockets of Strength Buoy Spirits 

Neutral to Bearish to Bearish investor sentiment jumped to 53% from 33% QoQ, while management tone is also described as more cautious



Top unaided concerns center on trade wars, the political environment and a slowing economy; 65% express High concern with trade wars and 54% believe a favorable resolution to the U.S./China trade dispute over the next six months is only Somewhat likely



Views that China and Europe are slowing are more prevalent QoQ, while nearly half expect Global Capex and PMI to Worsen over the next 6 months; global investors and analysts remain downbeat on Auto and Semi



The low interest rate environment remains a bright spot and largely priced into the market; survey participants anticipate one to two more cuts, as 69% expect the Fed Funds Rate will be 2.0% - 2.25% at year-end



While concerns over Industrial production mount, Technology and Healthcare register the highest levels of bullish sentiment and the consumer is still seen as going strong

#3 Despite Recent Record Highs, Equities Considered Fairly Valued 

56% describe U.S. equities as Fairly Valued, an increase from 51% last quarter; more value seen in Europe and Asia equities despite greater concerns around slowdown in those regions



While 58% report Holding or Rotating QoQ, Net Buyers have steadily increased over the past two quarters CORBINADVISORS.COM CORBINADVISORS.COM

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Amid Trade War Concerns and Signs of Slowing Growth, Investors Anticipate A Significantly Higher Number of Misses this Quarter Expectations Regarding 2Q19 Earnings Performance vs. Consensus

50%

49%

50%

Sep '18 Dec '18 Mar '19 Jun '19

32%

18%

Better Than

43%

Tariffs Europe

43%

37%

Unemployment Rate 21%

Trade Wars Global Economy

30%

20%

32%

18%

In Line

Buy-side Respondents Expecting Earnings to be Worse Than Consensus vs. 32% Last Quarter

Worse Than

41%

Expect Earnings to Decrease Sequentially vs. 50% Last Quarter

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Commentary on Earnings Expectations vs. Consensus Better Than – 20%

In Line – 37%

Worse Than – 43%

“Interest rates down, minimal unemployment, no government shutdown.”

“Steady economic environment, negative sentiment driven by tariff noise.” Buy Side,

Generalist, N. America

Buy Side, Generalist, N. America

Generalist, N. America

“Consumer and employment.” Buy Side,

“Corporate America keeps defying pessimistic predictions in the press.”

Generalist, N. America

“Timing and seasonality.” Sell Side, REIT,

N. America

Buy Side, Generalist, N. America

“Trade war and weather.” Buy Side, “Trade.” Buy Side, Generalist, N. America “Slowing top-line growth and margin pressure.” Buy Side, Generalist, N. America

“European and Chinese slowdown.”

Buy Side, Generalist, N. America

“Economic numbers are declining around the world.” Buy Side, Multi, N. America

“1Q19 was soft and the lack of drivers leaves little room for upside.” Buy Side,

“Fuel prices.” Buy Side, Multi, Asia

Generalist, N. America

“Unclear picture, optimism/pessimism keep balance.” Buy Side, Generalist, N. America

“Similar to Q1 but falling behind plan for the year.” Buy Side, Multi, N. America “Negative read on tariffs.” Buy Side, Multi,

“Weaker export and investment.” Sell Side, Multi, Asia

“With the onset of monsoon, economic activities get adversely affected.” Sell Side, Multi, Asia

“Consumer data.” Sell Side, Consumer Discretionary, Europe

N. America

“Not a recession yet.” Buy Side, Financials, Europe

“Lack of solid recovery in China, weakening conditions in the U.S. and Europe, excess supply chain inventories.”

Sell Side, Multi, N. America

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Organic Growth and FCF Largely Expected to Remain the Same QoQ; Views on Margins Slightly More Positive vs. Last Survey with More Expectations for Stabilization KPI Trends – Expectations Organic Growth 51% 44% 38% 35%

39% 21% 17% 11%

Improving

EPS

45% 44% 38%

49% 28% 19%

17%

Staying the Same

Operating Margins

26% 6%

Staying the Same

Worsening

Cash Flow 58%

46% 44% 36% 34%

45% 41% 38% 21%

16%

Improving

Worsening

36% 34% 30%

43%

55% 46%

30%

47%

46% 46% 38% 34%

20%22% 21%

42% 32% 33% 19%

11% 8%

Improving

Staying the Same

Worsening Sep '18

Dec '18

Improving Mar '19

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Staying the Same

Worsening

Jun '19 7

Topics of Interest for Upcoming Earnings Calls: Focus on Demand Trends and Action Plans to Position in a Slowing Growth Environment

1

Growth outlook, demand trends

2

Trade war impact

3

Efforts to position company for a slowdown, including capex levels

Out of N. America

Out of Europe

“Capex.” Buy Side, Generalist

“Impact of trade war.” Buy Side, Financials

“Business activity levels given weak freight data, slowing global PMIs, 2H outlook vs. prior guidance.” Buy Side, Generalist

“Margins.” Buy Side, Multi

“Signal on China demand and logistics planning.” Buy Side, Generalist

“Inflation.” Sell Side, Generalist “Stable earnings attitude.” Sell Side, Generalist

“China trade impacts, interest rate sensitivity, cash deployment.”

Out of Asia

“Ability/speed to accelerate or decelerate spending depending on demand outlook changes.” Buy Side, Generalist

“Economic impact.” Sell Side, Generalist

Buy Side, Generalist

“How they’re positioned for economic slowdown.” Buy Side, Generalist

“Trade war.” Sell Side, Multi “Easing out of liquidity, amicable Brexit and resolving of the trade conflict.” Sell Side, Multi

“Innovation and demand for their product or service going forward.”

Buy Side, Generalist

“What companies’ prospects are in the next six months.” Buy Side,

Generalist

“Standardized operations.” Buy Side, Multi “Growth, destocking, decremental plans.” Sell Side, Multi “How they are getting stronger.” Sell Side, Multi CORBINADVISORS.COM CORBINADVISORS.COM

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Concern Levels with Trade Wars Spike; 54% Believe a Favorable Resolution to the U.S./China Trade Dispute Over the Next Six Months is Only Somewhat Likely Concern Levels Trade Wars

Tariff Impact

Sep '18

22%

14%

64%

Sep '18

23%

25%

52%

Dec '18

19%

18%

63%

Dec '18

22%

28%

50%

Mar '19

31%

34%

Jun '19 10% 25% No Concern

35%

Mar '19

65%

Jun '19

Moderate

High

Dec '18 Mar '19 Jun '19

21% 24% 32% 34% No Concern

35%

Sep '18

38%

38%

Dec '18

35% Moderate

29%

28% 54%

Moderate

High

Rising Interest Rates

44%

41%

17%

40%

No Concern

Rising Input Costs Sep '18

32%

27%

Mar '19

31%

35%

37% 27%

35% 76%

High

No Concern

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38% 20% 4%

82%

Jun '19

28%

11%7% Moderate

High

9

Downbeat Investor Sentiment Registers at the Highest Level Since Sep. 2015, as Management Tone Heard as Slightly More Cautious

Investor Sentiment

6%

28%

2% 29%

Management Tone

11%

Bullish Neutral to Bullish Neutral Neutral to Bearish

16% 33%

33% 28%

29% 34%

Bearish 34%

53% 45%

28%

34%

27% 26%

5%

8%

Mar '19

Jun '19

3%

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29%

1%

5%

Mar '19

Jun '19

10

Commentary on Sentiment Drivers Neutral to Bullish – 29% “We are starting to see concerns based on the current economic cycle.” Buy Side, Generalist, N. America

“The slowing down of the global economy.” Buy Side, Financials,

“Tariffs.” Buy Side, Generalist, N. America “I think there will be a China-U.S. trade deal and rate increases are off the table for now.” Buy Side, Generalist, N. America

“Unemployment is too low, leading to wage inflation, trucking is hard to find, trade issues have not flowed through to financial statements but they are coming, the economy is very susceptible to an external event right now.” Buy Side, Multi, N. America

“There is room for surprises.” Buy Side, Generalist, N. America

“U.S.-China trade war.” Sell Side, Multi, Asia

Neutral – 16%

“The lingering trade war is towards dampening business sentiment.” Sell Side, Multi, Asia

“Fed and trade.” Buy Side, Generalist, N. America

Europe

Bearish – 8%

Neutral to Bearish – 45% “Trade/tariff uncertainty in light of the Mexico threats make me cautious.” Buy Side, Generalist, N. America

“Geopolitical issues, President, widening U.S. deficit despite high employment rate, use of tariffs – these were dismissed as ridiculous years ago. Potential for armed conflict in Middle East (i.e., U.S. and Iran).” Buy Side, Multi, N. America

“Geopolitical tail risks combined with stretched fundamentals.”

Buy Side, Generalist, N. America

“Expected re-acceleration has not materialized at the halfway point in the year. Very difficult binary trade war scenarios. Better to play it safe.” Buy Side, Generalist, N. America “Valuations and potential recession within 18 months.” Buy Side,

Generalist, N. America

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Top Unaided Concerns from around the Globe

1

Trade conflict

4

Monetary policy

7

Oil prices

2

Political environment

5

Middle East

8

Valuation

3

Slowing economy

6

China

9

Capex

Out of N. America

Out of Europe

“Escalating trade tensions, global capex, labor, inflation.”

“Global slowdown, Brexit, Auto sector.” Buy Side, Generalist

Buy Side, Generalist

“Trade as a non-economic policy tool, greater than anticipated slowdown in China, unpredictability of Trump.” Buy Side,

Generalist

“Slowing growth, tougher comps, the cycle.” Buy Side, Generalist Buy Side, Generalist

“Valuations, economy, exogenous shocks.” Buy Side, Generalist “Trade disputes, dollar too strong, Brexit.” Buy Side, Generalist

“Trade wars, Brexit, recession.” Sell Side, Multi “Growth, rates, sentiment.” Sell Side, Multi

“Trade wars.” Buy Side, Generalist “Trade war, too much debt, Italy.” Buy Side, Financials “Trade conflict, Europe weak economic growth, too positive outlook on low interest rates.” Buy Side, Multi

“U.S. war with China, U.S. war with Iran, Israel/Iran War.”

“U.S. politics, global politics.” Buy Side, Generalist

“Macro, inflation, interest.” Buy Side, Generalist

“Trade war, capex.” Buy Side, Multi “Politics, politics, politics.” Sell Side, Generalist

Out of Asia “Trade war, abnormality of weather, fuel prices.” Buy Side, Multi “Trade war, lower oil price & deflation, weak EU economy.”

Sell Side, Multi

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While Concerns Continue to Mount, the Low Interest Rate Environment and Strong Consumer Serve Up Sunshine Most Optimistic Areas of Equity Investments/Macro Landscape (unaided)

1

Technology (SaaS, AI, 5G)

“Employment, consumer confidence and low inflation.” Buy Side, Generalist, N. America “Fed will lower rates, still no credible alternatives to equities.” Buy Side, Generalist, N. America

“Consumer Discretionary will continue to grow, pushed by low unemployment rate and increase in wages.” Buy Side, Generalist, N. America “Tech, falling rates.” Buy Side, Generalist, N. America

2

Lower interest rates

3

Employment

“Technology.” Buy Side, Multi, N. America “SaaS software spending, Healthcare.” Buy Side, Multi, N. America “Technology, Healthcare and Consumer.” Buy Side, Multi, N. America “Overall U.S. economic health.” Buy Side, Multi, N. America “Low interest rates.” Buy Side, Multi, Europe

4 5

Consumer confidence

“Strong labor market.” Sell Side, Generalist, Asia “Reversion to mean in undervalued Industrials, which have been left behind in the recent run.” Sell Side, Generalist, Australia

Healthcare

“Combinations of fiscal and monetary stimulus have been taken by the major economies to positively drive business sentiment and thereby equity as an investment tool.” Sell Side, Multi, Asia

“5G, SaaS, life science and AI.” Sell Side, IT, N. America

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Recession Concerns Not Identified but Investors Overwhelmingly View the Global Economy as Losing Steam, Particularly in Europe and China Views on the Economy Following 1Q19 Earnings

Areas of Economic Slowdown (unaided)

62%

Regions 27%

6% Heading into Recession

Losing Steam

72%

Holding Steady

1%

4%

Gaining Steam

No Recession Concerns

End Markets

 60% | Europe

 29% | Auto

 33% | China

 21% | Industrial

 31% | U.S.

 18% | Semi

 10% | Asia

 11% | Construction

Do Not Believe We Will Enter a Recession in the Next 12 Months 2019 U.S. GDP Prediction 54% 47%

41%

37% 30% 28%

18%

14% 6%

2.0% or Below

2.5%

3%

3.0% Dec' 18

Mar '19

4% 3.5%

Jun '19

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4%

2%

8%

4%

I Do Not Pay Attention to GDP

14

A Common Theme This Survey: Nearly All Regions Anticipated to Stay the Same over the Next Six Months, with the Exception of China and Europe; Emerging Markets See Some Strength Global Economy Expectations over the Next Six Months India

45%

48%

7%

+8 pts

-5 pts

Southeast Asia

36%

42%

22%

+1 pt

+6 pts

Brazil

35%

37%

28%

-7 pts

+5 pts

Japan

25%

57%

18%

+7 pts China

+2 pts 22%

28%

50%

-9 pts Mexico

+14 pts

17%

49%

34%

-11 pts U.S.

+19 pts

15%

46%

39%

-9 pts Eurozone

15%

+4 pts 37%

48%

+3 pts Latin America

-8 pts

14%

64%

22%

-8 pts

-3 pts Improving

Staying the Same CORBINADVISORS.COM CORBINADVISORS.COM

Worsening

15

Expectations Over the Next Six Months: Global Capex, Global PMI and Consumer Confidence Improving

Staying the Same

Worsening

Global Capex 34% 44% 22% Sep '18

“Improving: Assuming trade conflict eases.” Buy Side, Generalist, N. America

19%

17%

40%

40%

37%

41%

41%

46%

19%

Dec '18

Mar '19

Jun '19

“Staying the Same: Until the Trump administration signals its satisfaction with trade deals, the rest of the world is uneasy.” Buy Side, Generalist, N. America “Worsening: Trade uncertainty.” Buy Side, Generalist, N. America “Worsening: Trade war.” Sell Side, Multi, Asia

Global PMI 14% 58% 28% Sep '18

12%

13%

14%

38%

42%

37%

“Worsening: China softening, trade war.” Buy Side, Generalist, N. America 50%

45%

49%

Dec '18

Mar '19

Jun '19

11%

15%

14%

42%

38%

54%

43%

48%

Dec '18

Mar '19

Jun '19

35%

51% 27% Sep '18

“Worsening: Already bad in most countries.” Buy Side, Multi, N. America

“Staying the Same: Should be fine until the labor market worsens.” Buy Side,

Consumer Confidence 22%

“Staying the Same: The lack of demand and efficiencies in commodity extraction leaves no room for price increases.” Buy Side, Generalist, N. America

Generalist, N. America

“Staying the Same: Sentiment and Central bank stimulus will balance each other.” Buy Side, Generalist, N. America “Worsening: Prices will increase from tariff impact.” Buy Side, Generalist, N. America

“Worsening: Will follow market and economy.” Buy Side, Multi, N. America CORBINADVISORS.COM CORBINADVISORS.COM

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Expectations Over the Next Six Months: O&G Marks, Resi and Non-Resi Improving

Staying the Same

Worsening

Oil & Gas Markets 47% 43% 10% Sep '18

“Improving: Middle East tensions should help oil prices.” Buy Side, Generalist, N. America

36%

26%

31%

38%

66%

43%

26% Dec '18

8% Mar '19

26% Jun '19

12% 34%

53% 25% Sep '18

54% Dec '18

49%

Generalist, N. America

“Staying the Same: There is oversupply regardless of political concerns.”

Buy Side, Generalist, N. America

“Improving: Macro need for millennial housing is building, interest rates lowering.”

27%

35%

39%

32%

34%

33%

Mar '19

Jun '19

Buy Side, Generalist, N. America

“Improving: Lower rates may drive home demand.” Buy Side, Generalist,

N. America

“Worsening: Things are already slowing.” Buy Side, Multi, N. America “Worsening: Tight mortgage measures.” Sell Side, Multi, Asia “Staying the Same: There are still many projects ongoing.” Buy Side, Generalist,

Non-Resi Construction 25%

“Staying the Same: U.S. production offsetting Middle East concerns.” Buy Side,

“Improving: Low rates.” Buy Side, Generalist, N. America

Resi Construction 22%

“Improving: Assuming trade conflict eases.” Buy Side, Generalist, N. America

14%

18%

10%

47%

50%

59%

N. America

“Staying the Same: Public infrastructure.” Sell Side, Multi, Asia “Worsening: Less desire for businesses to take on new risks.” Buy Side, Generalist, N. America

26%

39%

32%

31%

Sep '18

Dec '18

Mar '19

Jun '19

“Worsening: Why would companies increase capex in light of so much uncertainty?” Buy Side, Multi, N. America CORBINADVISORS.COM CORBINADVISORS.COM

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U.S. Equities Still Generally Viewed as Fairly Valued, with Limited Concerns on Brexit or Rising Interest Rates; Net Buyers Increase QoQ QoQ Investment Trends

Global Equity Valuation Classification

43%

1% U.S. Under

69%

24% 11%

56%

70%

31%

45%

45%

41%

42%

22%

23%

32%

33%

Europe

Asia

Fairly

16%

32%

25% 14%

28%27%26%

17% 5%

Net Buyer

Over

Net Seller

Holding

Dec '18

Rotating

Mar '19

1% 1%

Liquidating

Jun '19

QoQ Portfolio Cash Holding Europe Investors Who Consider Europe Equities Undervalued

50%

46%

44% 43% 33%

Are Not Concerned or Only Somewhat Concerned about Brexit

37% 10% 13%

Expect the Fed Funds Rate Will be Between 2.0% and 2.25% at 2019 Year-end

Increase

Remain Steady Dec '18

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4%

Decrease Mar '19

7% 6% 7% Do Not Hold Cash

Jun '19 18

Technology and Healthcare Continue to Set the Pace, While Bears Swarm Around Materials, Energy and Industrials

51%

Technology 42%

Healthcare

62%

Financials

24%

Comm. Services

34% 26%

Industrials

36%

Cons. Disc.

21% 26%

Building Products

Industrials

25% 21%

REITs

21% 20%

Utilities

21% 20%

20% Mar '19

28% Jun '19

28%

Mar '19

Healthcare, Tech and Comm. Services See the Most Significant Increases in Positive Sentiment

34%

30%

Cons. Disc.

Financials

42%

34%

19%

Energy

27% 31%

Cons. Staples

18%

Materials

56%

40% 39%

Biotech

36%

37% 48%

Jun '19

REITs Once Again See their Fewest Bears in Over Three Years, While Building Products See the Largest Decrease in Negative Sentiment QoQ

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Debt Reduction Identified as the Top Use of Cash, with 80% Asserting They are Placing More Emphasis on Balance Sheet Strength vs. One Year Ago; Preferred Debt Levels Now 2.0x or Less Preferred Uses of Cash

In Descending Order of Top Two Preferences 46%

52%

53%

45% 29%

Debt Paydown

Reinvestment

39%

34% 21%

Dividend Growth

26%

26%

Buybacks

Jun '16

24%

M&A

19%

Dry Powder

Jun '19

Preferred Net Debt-to-EBITDA Levels 36%

32% 22% 16%

32%

27% 28% 18% 18%

12%

<2.0x

11%

9%

2.0x

2.5x 2016

3.0x 2018

7%

2%

5%

>3.0x

11%

10% 4%

No Ideal Level

Jun '19

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