2Q19 Industrial Sentiment Survey

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2Q19 Earnings Primer Industrial Sentiment Survey July 18, 2019 CORBINADVISORS.COM

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Inside The Buy-side® Industrial Sentiment Survey

Issue Date: July 18, 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.1

Market Performance 2Q19

YTD *

DJIA

2.6%

14.0%

NASDAQ

3.6%

20.7%

Scope: 35 sector-dedicated investors and analysts globally; buy-side firms manage $978 billion in assets and have ~$101 billion invested in Industrials.

S&P 500

3.8%

17.3%

S&P Industrial

3.4%

17.8%

Timeframe: June 17 – July 8, 2019

Russell 2000

1.7%

16.2%

* As of 6’28’19

Role

Sector Focus

Region 3% 6%

34%

22%

46% 54%

66%

69%

Industrials Buy Side

Sell Side

Multi-Industry Incl. Industrials

N. America

EMEA

APAC

LatAm

CORBINADVISORS.COM 1

The Industrial Sentiment Survey was first published in June 2015

2

Word Cloud: Frequency of Occurrence Trade War Concerns, as well as Slowing Growth in China and Europe, Drive Continued Cautious Views

1Q 2019

2Q 2019

Key: Underlying Sentiment

⚫ ⚫ ⚫

Positive Neutral Negative CORBINADVISORS.COM 3

Bearish Sentiment Spikes amid Tariff Impact and Slowing Growth Concerns; Majority Expect a Tough Quarter for Industrials and Describe Global Economy as “Losing Steam”

#1

Investor Sentiment and Perceived Management Tone Register at the Most Downbeat Levels in Over Three Years as Tough Comps and Headwinds Mount

▪ Neutral to Bearish and Bearish investor sentiment more than doubled QoQ, while those classifying management tone as

such jumped to 37% from 4% last quarter ▪ More than half believe earnings will Decrease sequentially and come in Worse Than consensus, tripling QoQ and the highest

level registered since Dec. 2015 ▪ All KPIs – Revenue Growth, EPS, Margins and Cash Flow – are expected to Stay the Same or Worsen QoQ ▪ Growth outlook and strategies, cost containment and geographic trends are key focus areas for upcoming earnings calls ▪ 49% expect 2019 Industrial organic growth rates to be 2.5% or lower, on average, compared to 39% last quarter

#2

Significant Uncertainty with Tariffs and the Extent to which Growth Will Slow Weighs on Industrials; A Recession not Expected but Regional Trends are in Focus

▪ Trade conflict is cited as the top concern for the fourth consecutive quarter; 81% express High concern and 64% believe a

favorable resolution to the U.S./China trade dispute over the next six months is only Somewhat likely ▪ 65% note the U.S. economy is Losing Steam, though 63% Do Not believe we will enter a recession in the next 12 months ▪ When asked where they are seeing economic weakness, 45% and 41% cite China and Europe, respectively ▪ Views on peak Industrial earnings are divided; nearly one-third believes Industrials have Already Peaked, though a slightly

higher number, 42%, anticipate 2020 or later

#3

Investors Engaging in Stock Picking and Pruning as Pockets of Weakness Grow; Financial Wherewithal Plus Cycle-tested Management a Competitive Advantage

▪ 27% report Selling investments, an increase from 18% QoQ; Net Buyers fell to 9% from 27% last quarter

▪ Resi Construction, Building Products and Water see the most significant spikes in bullish sentiment, while Machinery and

Ag bears proliferate ▪ Conservative balance sheets remain in focus: 57% of Industrial investors prefer Net Debt-to-EBITDA levels of less than

2.0x, compared to only 32% of all investors in our broader, multi-sector Earnings Primer CORBINADVISORS.COM 4

More Than Half Believe Earnings will be Worse Than Consensus, Tripling QoQ and Registering at the Highest Level since Dec. 2015

Expectations Regarding 2Q19 Earnings Performance vs. Consensus

Tariffs Slowing Economy Management Discussions 66%

Sep '18 Dec '18

54%

52%

Mar '19 Jun '19

Seasonality 34%

33%

30% 17% 14%

13%

Better Than

53%

52%

In Line

Expect Earnings to Decrease Sequentially

58%

vs. 54% Last Quarter

18% 17%

Worse Than

Sell-side Respondents Who Expect Earnings to be Worse Than Consensus vs. 8% Last Quarter

CORBINADVISORS.COM 5

Commentary on Earnings Expectations vs. Consensus Better Than – 14%

In Line – 34%

Worse Than – 52%

“Tariff and economic fears have somewhat eased, which should mean an uptick in corporate and personal consumption.” Buy Side,

“The slowing economy as well as rising input costs due to tariffs.”

“Weakening demand globally brought on by trade war.” Buy

Buy Side, Generalist, N. America

Side, Industrials, N. America

Industrials, N. America

“2Q trends seem to be below prior expectations.” Sell Side,

“Loss of benefit from tax cuts on a YoY basis.” Buy Side, Generalist,

“Seasonality should help Q2 but extremely wet weather affecting construction and ag markets and tariff/trade uncertainty impacting nearly every end market. Slowing LEIs, PMI, Philly Fed, etc.”

Industrials, N. America

N. America

“Discussions with CFOs.”

“Manufacturing vs. services, international exposure.” Buy Side,

Sell Side, Industrials, Asia

Generalist, Europe

Buy Side, Generalist, N. America

“Companies are talking down numbers so they can beat them.”

“Timing and seasonality.”

Sell Side, Multi-sector, Australia

Sell Side, REIT, N. America

“U.S./China conflict.” Sell Side, Industrials, Asia

1

Better Than – 17%; no comments provided

CORBINADVISORS.COM 6

Mixed Views Identified Regarding KPIs but Generally Telegraph Tempered Outlooks KPI Trends – Expectations EPS Growth

Revenue Growth 71% 71%

56% 50% 38%

35% 35%

29%

27%

23%21%

9%

27% 24% 24%

8%

6%

Improving

Staying the Same

Improving

Worsening

45%44%47% 37%

42% 28% 20% 17%

Staying the Same

Worsening

Cash Flow Growth

Operating Margin Expansion

Improving

43% 41% 35%

41% 35% 30% 21%

48% 38% 31%33%

38%

33% 28%

39%

41% 40%

28%

34% 28% 27%

21% 13%

Staying the Same

Worsening

Sep '18

Improving

Dec '18

Mar '19

Staying the Same

Worsening

Jun '19

CORBINADVISORS.COM 7

Topics of Interest for Upcoming Earnings Calls: Global Growth Outlooks and Input Costs; 67% Expect Further Cost-Cutting Initiatives to be Announced this Quarter

1

Growth outlook and strategies

2

Cost containment

3

Geographic trends

Out of N. America

Out of EMEA

“I want to know in general the assumptions that underlie guidance.”

“Input costs, Auto sector.” Buy Side, Generalist

Buy Side, Industrials

“Commercial Aerospace and Defense spending outlooks.” Buy Side, Industrials

“Wages.” Buy Side, Generalist “Regional development, client activity, production capacity.”

Sell Side, Industrials

“FCF.” Buy Side, Industrials “What are they doing to free themselves from the chain of macro malaise?” Buy Side, Generalist

“Economic outlook.” Sell Side, Multi-sector

Out of APAC “Growth cycle.” Buy Side, Generalist

“2H guidance and assumptions.” Sell Side, Industrials

“Trade and currency effects.” Buy Side, Generalist

“Growth strategies.” Sell Side, Multi-sector

“What will spur capex to improve productivity?” Buy Side, Generalist “Leverage, tone of biz.” Sell Side, Industrials “Inflation, pricing, labor availability/cost.” Sell Side, Industrials “Growth expectations for 2H19, how to maintain margins in moderating growth environment, contingency plans around escalation/de-escalation for trade/tariff, cap deployment strategy in current environment.” Sell Side, Industrials “Relative strength of major geographies (N. America, EMEA, APAC, LatAm).” Sell Side, Multi-sector CORBINADVISORS.COM 8

No Clear Consensus on Peak Industrial Earnings While Most Expect Organic Growth to be 2.5% or Lower Industrial Earnings Peak Outlooks

42%

33%

32%

29%

32%

29%

28% 26%

17%

16%

2H 2019 Sep '18

2020 Dec '18

Mar '19

20%

12%

9%

Already Peaked

26%

24%

20%

After 2020

Jun '19

Expectations for 2019 Industrial Organic Growth

29% 21%

22%

21%

22%

17%

17%

11%

14%

11% 7%

4%

4% 0%

<2.0%

2.0%

2.5%

3.0%

Mar '19

3.5%

4.0%

5.0%+

Jun '19

CORBINADVISORS.COM 9

Economy Seen as “Losing Steam” though Recessionary Fears Remain in Check Views on the Economy Following 1Q19 Earnings

Areas of Economic Slowdown

65%

Regions

End Markets

▪ 45% | China

▪ 41% | Auto

▪ 41% | Europe

▪ 18% | Semi

▪

9% | U.S.

▪ 18% | Ag

▪

9% | Japan

▪ 18% | Electronics

19%

6% Heading into Recession

63%

Losing Steam

Holding Steady

3%

7%

Gaining Steam

No Recession Concerns

Do Not Believe We Will Enter a Recession in the Next 12 Months

QoQ Investment Trends

37% 37%

27%

37%

27%

27% 22%

19% 18%

15%

18%

9%

7% 0% 0%

Net Buyer

Net Seller

Holding

Dec '18

Mar '19

Rotating

Liquidating

Jun '19

CORBINADVISORS.COM 10

Trade War Concerns Spike: 64% Believe a Favorable Resolution to the U.S./China Trade Dispute Over the Next Six Months is Only Somewhat Likely Concern Levels Trade Wars Sep '18 Dec '18

Mar '19

25% 13%

Tariff Impact

17% 24%

35%

Sep '18

58%

Dec '18

63%

30%

Jun '19 6%13%

29% 13%

Mar '19

35%

Jun '19

81%

10%

Dec '18 Mar '19 Jun '19

25%

33%

41% 35% 43%

39% 27%

63%

40%

30%

34%

56%

Rising Interest Rates Sep '18

42% 28%

50%

24%

30%

Rising Input Costs Sep '18

21%

54%

Dec '18

31% 26%

40%

Mar '19

No Concern

Moderate

39% 60%

Jun '19

30%

21%

21% 27%

87%

25%

13% 10% 3%

High

CORBINADVISORS.COM 11

Perceived More Downbeat Management Tone Drives Bearish Investor/Analyst Sentiment Management Tone

Investor Sentiment

4%

4%

Bullish 28%

6%

Neutral to Bullish 20%

Neutral 39% Neutral to Bearish

48%

18%

Bearish 35%

56% 32%

37% 44%

31%

47%

25% 14%

4%

6%

Mar '19

Jun '19

11%

9%

Mar '19

Jun '19

CORBINADVISORS.COM 12

Top Unaided Concerns from around the Globe

1

Trade conflict

2

Slowing global demand

3

Political environment

4

Auto

5

Input costs

6

Debt levels

Out of N. America

Out of EMEA

“Global warming, nuclear proliferation, that the Dems mess up and Trump wins another term.” Buy Side, Industrials

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

“Global demand, pricing, costs.” Buy Side, Industrials “Short sellers, leveraged loans, deflation.” Buy Side, Generalist

“Tariffs, China, Auto.” Buy Side, Industrials “Trade wars.” Buy Side, Generalist

“Weakening demand, tariffs.” Buy Side, Industrials “Trade wars, economic slowdown, rising rates.” Sell Side, Multi-sector

“Tariffs/trade, rising global debt levels, nationalism.” Buy Side, Generalist

Out of APAC

“Length of cycle, geopolitical, political pressure on U.S. Fed.”

“U.S.-China, too much inventory, likelihood of recession.” Sell Side,

Buy Side, Generalist

Industrials

“Trade, labor, input costs.” Buy Side, Generalist

“Growth, valuation, trade.” Sell Side, Multi-sector

“The Fed will help us through 2019 and politicians in 2020. Then, all bets are off.” Buy Side, Generalist “Trade issues, federal debt and deficits, slowing consumer.”

Buy Side, Generalist

“Political relations, interest rates, consumer market robustness.”

Sell Side, Multi-sector CORBINADVISORS.COM 13

Despite Growth Concerns, Investors Favor Reinvestment, Followed Closely by Debt Paydown; Leverage Thresholds More Conservative vs. Broad-based Research

Preferred Uses of Cash (In Descending Order of Top Priority)

41%

36% 28% 18%

14%

10%

Reinvestment

Debt Paydown

14%

11%

Dividend Growth 1st Choice

8%

M&A

7%

Buybacks

4%

7%

Dry Powder

2nd

Preferred Net Debt-to-EBITDA Levels 57%

32%

32% 23%

17% 11%

9%

11% 5%

3%

<2.0x

2.0x

2.5x

3.0x

0%

>3.0x

Earnings Primer (All Investors)

Industrial Investors

(n = 84)

(n = 35)

0%

No Ideal Level

CORBINADVISORS.COM 14

While Views on M&A Lukewarm, Consolidation is the Most Compelling Theme, Followed by Innovation

Most Compelling Investment Themes in the Industrial Universe (unaided)

1

Consolidation

“Reduction of global warming trends, adoption of Lean manufacturing and management.”

Buy Side, Industrials, N. America

“Automation, software, productivity.” Buy Side, Industrials, N. America “Aerospace aftermarket.” Buy Side, Industrials, N. America “M&A.” Buy Side, Generalist, N. America “Self-help stories, innovation stories.” Buy Side, Generalist, N. America

2

Innovation stories

“Homebuilders / housing, semiconductors, healthcare delivery.” Buy Side, Generalist, N. America

“Emerging markets.” Buy Side, Generalist, N. America

3

Energy efficiency

“Energy efficiency.” Buy Side, Generalist, Europe “Aeronautics, microelectronics.” Buy Side, Generalist, Europe

4

Aerospace

“Consolidation, technology.” Sell Side, Industrials, N. America “Acquisitions/consolidation.” Sell Side, Industrials, N. America

5

“Cybersecurity.” Sell Side, Multi-sector, N. America

Resi construction “Business leadership and performance.” Sell Side, Multi-sector, N. America “Rebound in Residential Construction thanks to low rates.” Sell Side, Multi-sector, Australia “Companies focused on domestic economy, no debt and demand exceeding supply (i.e., Swiss construction market).” Sell Side, Industrials, Europe

CORBINADVISORS.COM 15

Consistent Survey Themes: More Downbeat Sentiment Across Key Indicators; Negative Views on Global PMI Spike Expectations over the Next Six Months

Oil & Gas Markets

40%

43%

17%

-3 pts Housing/Resi. Const.

+17 pts

37%

40%

23%

+2 pts Non-Resi Const.

+10 pts

10%

60%

30%

-16 pts Global Capex

10%

+17 pts 33%

57% +31 pts

-16 pts FX Headwinds

8%

73%

19%

-8 pts Input Costs

-2 pts

7%

60%

33% +7 pts

-32 pts Global PMI

7%

30%

63%

-11 pts

+36 pts Improving

Staying The Same

Worsening

CORBINADVISORS.COM 16

Expectations More Cautious Around the World, as Nearly All Global Economies Anticipated to Stay the Same or Worsen Global Economy Expectations over the Next Six Months

Brazil

43%

24%

33% +10 pts

+2 pts Southeast Asia

37%

43%

20% +11 pts

+10 pts India

30%

57%

13%

-2 pts Japan

+13 pts

20%

53%

27% +9 pts

-7 pts China

20%

23%

57% +21 pts

-16 pts Mexico

17%

56%

27% +8 pts

-21 pts U.S.

17%

43%

40% +26 pts

-10 pts LatAm (ex-Brazil)

17%

43%

40%

-6 pts Eurozone

+31 pts

17%

40%

43%

-1 pt

-7 pts Improving

Staying The Same

Worsening

CORBINADVISORS.COM 17

Significant Shifts in Sentiment Identified with More Bears than Bulls

Predicted to Grow Faster than GDP 63%

Defense 50% 46%

42%

Transportation (Trucks)

6%

54%

14% 52% 67%

36% 19%

35% 20%

Metals & Mining

27% 19% 19%

35% 19%

Building Products

6% 16%

Non-resi Construction

13% 15%

Materials

Mar '19

19%

Industrial Equip. & Comp.

30%

Non-resi Construction

Machinery

Agriculture

53%

Metals & Mining

Distribution

42%

25%

Resi Construction

61%

Machinery

22%

Water

75%

Automotive

77%

Commercial Aerospace

Building Products

Predicted to Grow Slower than GDP

31%

25% 31% 36% 23% Mar '19

Jun '19

Several Industries See Big Spikes in Bullish Sentiment; Investors More Bullish on Resi, Building Products and Water

Jun '19

Transportation Rebounds While Machinery and Ag Falter

CORBINADVISORS.COM 18

100% 100% 100%

80% 80% 80%

60% 60% 60%

40% 40% 40%

20% 20% 20%

0% 0% 0%

Transportation (Trucks)

Bulls

Sep '15 Dec '15 Mar '16 Jun '16 Sep '16 Dec '16 Mar '17 Jun '17 Sep '17 Dec '17 Mar '18 Jun '18 Sep '18 Dec '18 Mar '19 Jun '19

Resi Construction

Industrial Equip. & Comp.

100% 100% 100%

80% 80% 80%

60% 60%

60%

40% 40% 40%

20%

20% 20%

0% 0% 0%

Sep '15 Dec '15 Mar '16 Jun '16 Sep '16 Dec '16 Mar '17 Jun '17 Sep '17 Dec '17 Mar '18 Jun '18 Sep '18 Dec '18 Mar '19 Jun '19

Sep '15 Dec '15 Mar '16 Jun '16 Sep '16 Dec '16 Mar '17 Jun '17 Sep '17 Dec '17 Mar '18 Jun '18 Sep '18 Dec '18 Mar '19 Jun '19

Sep '15 Dec '15 Mar '16 Jun '16 Sep '16 Dec '16 Mar '17 Jun '17 Sep '17 Dec '17 Mar '18 Jun '18 Sep '18 Dec '18 Mar '19 Jun '19

Water

Sep '15 Dec '15 Mar '16 Jun '16 Sep '16 Dec '16 Mar '17 Jun '17 Sep '17 Dec '17 Mar '18 Jun '18 Sep '18 Dec '18 Mar '19 Jun '19

Sep '15 Dec '15 Mar '16 Jun '16 Sep '16 Dec '16 Mar '17 Jun '17 Sep '17 Dec '17 Mar '18 Jun '18 Sep '18 Dec '18 Mar '19 Jun '19

Sector Trends

Building Products

Agriculture

Bears

CORBINADVISORS.COM 19

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