q1'20 iss by Corbin Advisors

Industrial Sentiment Survey

April 23, 2020

100%

75%

50%

Bears

25%

Bulls Dec '18

01 December 2018

Mar '19

Jun '19

02 June 2019

• Survey reveals investors continue to grasp reality of slowing global growth; positive sentiment ebbs

• Bearish sentiment spikes amid tariff impact and continued concerns around slowing growth

• 2019 industrial organic growth forecasts are for 3.0-4.0% vs. 5.0%+ in 2018

• 65% note the U.S. economy is Losing

• Nearly 30% believe the cycle has peaked, while 42% forecast the peak will occur in 2019

• 2019 industrial organic growth forecasts are now for 2.5% or lower, on average

Steam

• 81% express High concern with the U.S./China trade dispute and 64% believe a favorable resolution over the next six months is only Somewhat likely

Sep '19

03 December 2019

Dec '19

Mar '20

04 March 2020

• With pervasive downbeat views amid industrial performance in 2019, investor sentiment rebounds heading into 2020 on the heels of Phase 1 tariff deal

• 58% describe themselves as Bearish or Neutral to Bearish, the highest level registered since Dec. 2015 due to COVID-19 impact

• While 48% predict sequential earnings deceleration following a number of Q4 guide-downs, 54% now expect Q1 results to come In Line with consensus, more than doubling QoQ

• 76% predict sequential earnings deceleration and 79% expect results to be Below consensus

• Despite continued slowing growth, twothirds expect 2020 Guidance Outlooks to be In Line or Better Than 2019 performance

• More than 90% expect EPS, Revenue Growth and Operating Margins to register Worse Than expectations, all record lows

Corbin Advisors

Issue: 20

For over a decade, we have surveyed global industrial investors quarterly on the equity markets, world economies and business climate. At the start of every earnings season, we publish our leading-edge research, Inside The Buy-side Industrial Sentiment Survey®, which captures real-time Voice of Investor® sentiment and trends.

In June 2015, we introduced the Industrial Sentiment Survey.

Date: April 23, 2020

MARKET PERFORMANCE

Q1’20

YTD1

Leveraging our deep understanding of capital markets, proprietary research, cutting-edge technology and best practice knowledge, our research demonstrates the value we add by remaining at the forefront of global market trends, investor sentiment and effective communication strategies.

DJIA

(23.2%)

(17.7%)

NASDAQ

(14.2%)

(5.3%)

S&P 500

(20.0%)

(13.4%)

Survey Scope: 30 sector-dedicated investors and analysts globally; buy-side firms manage ~$761 billion in assets and have ~$101 billion invested in Industrials

S&P 500 Industrial

(18.0%)

(10.5%)

Russell 2000

(30.9%)

(28.0%)

Survey Timeframe: Mar. 17, 2019 – Apr. 15, 2020

ROLE

SECTOR FOCUS

As of Apr. 22, 2020

REGION

7% 13%

33%

37%

63%

67%

80%

Buy Side

Sell Side

Industrials

Multi-Industry Incl. Industrials

North America

EMEA

APAC

Corbin Advisors

FOLLOWING A REBOUND IN SENTIMENT LAST QUARTER, COVID-19 REVERSES THE COURSE

Q2’19

TOP MENTIONS

Q3’19

Q4’19

Q2’19

Q3’19

Q4’19

Q1’20

Q/Q

COVID-19

 37

⚫

Positive

Economy

 6

⚫

Neutral

Crisis

 7

⚫

Negative

Recession

 6

U.S.

 4

Q1’20

Key: Underlying Sentiment

Corbin Advisors

With Clear Expectations for Deteriorating Performance, Investors Seek to Measure Early Downside Risk

Investors Have Specific Expectations and Await Clarity from Executives

• 58% describe themselves as Bearish or Neutral to Bearish, the highest level registered since Dec. 2015, though this is well below the level of bearishness (77%) captured in our Earnings Primer Survey, which comprises views from 89 investors globally, 61% of which are Generalists

• Top areas of interest for upcoming earnings calls include liquidity and cost management levers, demand trends and capital allocation reprioritization; margin outlooks emerge as the leading sell side question across earnings calls already occurring

- 39% of industrial investors describe themselves as outright Bearish, up from 3% last quarter and more than double that of the previous record in Dec. 2015 (18%) • 76% of investors and analysts predict sequential earnings deceleration and 79% expect results to be Below consensus • More than 90% expect EPS, Revenue Growth and Operating Margins to register Worse Than expectations, all record lows • Similarly, more than 90% believe the U.S. and Eurozone will Worsen over the next six months, followed closely by Latin America, Mexico and Brazil; China is the lone region expected to improve, a view held by nearly 50%, despite two-thirds not expecting a ‘Phase 2’ U.S./China trade agreement this year • 86% expect the U.S. to enter a recession in 2020; full-year U.S. industrial organic growth predictions average an 8.1% contraction, though more than one-third expect a 10% or greater contraction

• Debt reduction is overwhelmingly cited as the top capital deployment preference by 62%; those favoring cash conservation also increased more than five-fold to 54% from 10% last quarter - 58% are in favor of companies drawing on their revolver at this time, while 33% note “it depends” on the company and only 9% are against - 50% report a preferred Net Debt-toEBITDA ratio threshold below 2.0x, in line with last quarter

Few Pockets of Optimism Exist with a Tough Year ahead for Most Industrials… Sellers Nearly Outpace Buyers 3:1 • Despite more than 50% classifying industrial equities as Undervalued, 35% report Net Selling, compared to 13% Net Buying and 17% Rotating; the most compelling investment themes include cost-cutting initiatives and aftermarket exposure, while mid-caps and companies with oil exposure are outof-favor • Despite a significant pullback, Defense remains the top pick among industries for the 10th consecutive quarter, with Ag and Water the only other industries with more bulls than bears; Commercial Aerospace sees record 100% bearishness

• Only 21% favor dividend growth, while fewer than 20% prefer buybacks or M&A at this point

Corbin Advisors

Q1’20 EARNINGS EXPECTATIONS VS. PRIOR QUARTER

Q1’20 EARNINGS EXPECTATIONS VS. CONSENSUS 79%

76% 53% 56% 48%

32% 28% 34% 24%

15% 16% 18%

52% 55%

54% 34% 14% 19% 15%

26%

31%

21%

Better Than

In Line Jun '19

Sep '19

Better Than

Worse Than Dec '19

In Line Jun '19

Mar '20

Sep '19

Worse Than Dec '19

Mar '20

Worse Than

INDUSTRIAL GUIDANCE ACTIONS DURING Q1’20 EARNINGS TO-DATE

n = 28

“Severe worldwide drop-off in March.” Buy Side, Industrials, N. America

Withdrew Annual

“World ended mid-March and many estimates have not been adjusted for it.” Buy Side, Industrials,

36%

N. America

Withdrew Quarterly

11%

Withdrew Both

65% 18%

Lowered Annual

Lowered Annual, Gave Quarterly

Does Not Give Historically

“Q1 typically seasonally weaker, plus COVID-19.” Sell Side, Industrials, N. America “Coronavirus.” Sell Side, Industrials, Europe

14% Cannot Estimate

“March cratered in U.S. and Europe and Asia was very weak.” Sell Side, Industrials, N. America

“Coronavirus and the unknown extent of its toll.” Sell Side, Industrials, Asia “The coronavirus crisis is going to hit the global economy with full force in Q1’20. Although economic activity in the U.S. will only be severely curtailed in Q2’20, the impact is already being felt today.” Sell Side, Generalist, Europe

3% 18%

Corbin Advisors

REVENUE GROWTH

EPS

FCF

OPERATING MARGINS

92%

91%

92% 75%

52% 37%

47% 32% 16%

16% 0%

Improving

44% 32% 25%

Staying the Same

41% 24%

21%

Improving

Staying the Same

37%

23%21%

22%

0% Worsening

62%

54%

4% Worsening

Sep '19

Improving

Dec '19

15%

0% Staying the Same

Worsening

43% 31%

38% 32%

31% 25%

Improving

Staying the Same

Worsening

Mar '20

RESPONDENTS EXPECTING WORSENING KPIS 100% 90% 80% 70% 60% 50% 40%

30% 20% 10% 0%

Dec '15

Mar '16

Jun '16

Sep '16

Dec '16

Mar '17

Jun '17

Sep '17

Revenue Growth

Dec '17 EPS

Mar '18 FCF

Jun '18

Sep '18

Dec '18

Mar '19

Jun '19

Sep '19

Dec '19

Mar '20

Operating Margins

Corbin Advisors

INVESTOR SENTIMENT 8%

11%

15% 54%

MANAGEMENT TONE 4%

43%

23%

Bullish Neutral to Bullish

19%

36%

32%

Neutral to Bearish

32% 33%

Bearish

18%

30%

15%

Neutral

19%

30%

58% 28%

39%

25% 3% Dec '19

55% 32%

28% 4% Dec '19

Mar '20

22% Mar '20

Views from N. America

Views from EMEA

“State of end demand and financial condition.” Buy Side, Generalist

“Supply chain viability, readiness for second COVID-19 wave and swift recovery.” Buy Side, Generalist

“Liquidity.” Buy Side, Industrials “Virus impact and outlook.” Buy Side, Industrials “What’s next after the downturn and why is their company going to lead or participate in the changes ahead?” Sell Side, Industrials

“Accuracy of coronavirus impact. What risk measurements can help prevent from pandemics in the future? How can corporations survive in such a calamity?” Sell Side, Industrials

“Fixed vs. variable costs.” Sell Side, Industrials “Supply chain challenges.” Sell Side, Industrials “Sales and orders.” Sell Side, Industrials

Corbin Advisors

95%

COVID-19

Views from N. America

Views from EMEA and APAC

“Excessive credit leading to a credit crisis, poor understanding of policy responses, general complacency.” Buy Side, Generalist

“Second wave of COVID-19, war, emerging market debt worries.” Buy Side, Generalist

“Corporate earnings, U.S. debt levels.” Buy Side, Generalist

“Market behavior (herd), spread of COVID-19, politics in the U.S.” Buy Side, Multi

“Recession, recovery-related inflation, election cycle.” Buy Side, Generalist

45%

Liquidity / Debt

“Second wave of COVID-19, massive increase in unemployment, ballooning budget deficits.” Buy Side, Generalist “COVID-19, oil, banks failing.” Buy Side, Industrials

Economy / Recession

30%

15%

“Virus, post-virus recession, post-virus balance sheets.” Buy Side, Industrials

“US-election, fail of COVID-19 vaccine, trade war for US-China.” Buy Side, Generalist

“Adequate liquidity, unburdened by poor businesses that are about to be eclipsed in the accelerating shift to a digital economy, poised and ready to be opportunistic.” Sell Side, Industrials

“Employment, capital spending, consumer confidence.” Sell Side, Industrials

15%

Generalist

“Fiscal mistakes, COVID-19.” Buy Side, Generalist

“Estimates, expectations for a V recovery.” Sell Side, Industrials

Election Cycle

“Growth, Trump, China, Russia and Turkey.” Buy Side,

“Duration of virus-related shutdowns.” Buy Side, Industrials

“Virus, Trump.” Buy Side, Industrials

Policy / Stimulus

“Overcrowded tech, extremely low yields in corporate, zombification of economy.” Buy Side, Generalist

“COVID-19 curve, yield curve, depth of recession.” Sell Side, Industrials “Unable to restart the economy, financial stress, crushing bear market.” Sell Side,

“COVID-19, U.S. elections, Brexit.” Sell Side, Materials “COVID-19 second wave/no vaccine, unemployment kicking in as furlough/temp payment schemes end, Trump re-election.” Sell Side, Multi “New conflict between U.S. and China, Brexit, government debt.” Sell Side, Generalist “Second wave of COVID-19 cases in Europe and U.S., escalation of the U.S./China trade war.” Sell Side, Multi

Industrials

“COVID-19 bankruptcies, COVID-19 lasts longer, democrats.” Sell Side, Industrials

Corbin Advisors

PREFERRED USES OF CASH FOR INDUSTRIALS In Descending Order of Top Two Preferences 73% 62% 50%

54%

57%

41%

39% 26%

25%

36%

32% 21%

15%

10% Debt Paydown

Dry Powder

Reinvestment Sep '19

Dividend Growth Dec '19

34% 18%

13%

Buybacks

13% M&A

Mar '20

58%

IDEAL NET DEBT-TO-EBITDA LEVELS FOR INDUSTRIALS

Are in Favor of Companies Drawing on their Revolver; 33% Note “It Depends” on the company

50%

(Q1’20) 41% 33% 27%

26%

33% 28%

26%

17% 12%

11% 5%

1.0x

1.5x

2.0x

2.5x Sep '19

Dec '19

11% 5% 3.0x

5% 0% >3.0x

Mar '20 Corbin Advisors

MANUFACTURING ISM® REPORT ON BUSINESS1

2020 U.S. INDUSTRIAL ORGANIC GROWTH/CONTRACTION EXPECTATION

60 23%

23%

56.6

54.2

55.3 52.8

15% 8%

-11 to -15%

-6 to -10%

-1 to -5%

>0%

According to our survey, investors are most focused on the following economic indicators

51.2 49.1

Jan '19

Feb '19

Mar '19

Apr '19

May 19

Jun '19

Jul '19

Aug '19

47.8

48.3

48.1

47.2

Sep '19

Oct '19

Nov '19

Dec '19

50.9

50.1

Jan '20

Feb '20

49.1

Mar '20

Great Recession Peak: 10.1% (Oct. 2009)

6.0%

5.0%

Manufacturing ISM®

76%

Unemployment

39%

3.0% 2.0%

Consumer Confidence

18%

Yield Curve

18%

Commodity Prices

15%

CPI

GDP

150

CFI

140

4.4%

4.0%

3.8%

3.6%

3.7%

3.5%

3.6%

3.5%

3.6%

3.5%

Jan '19

Feb '19

Mar '19

Apr '19

May 19

Jun '19

Jul '19

Aug '19

Sep '19

Oct '19

Nov '19

Dec '19

Jan '20

Feb '20

4.0%

Housing Market

130

Stock Market

120 110

131.4 124.2

121.7

Jan '19

Feb '19

Mar '19

Mar '20

Great Recession Low: 25.3 (Feb. 2009)

CONSUMER CONFIDENCE3

Institute for Supply Management; Source: U.S. Bureau of Labor Statistics; Source: The Conference Board

51.7

U.S. UNEMPLOYMENT RATE2

PROPRIETARY RESEARCH

1 Source:

52.1

50 45

-16 to -20%

Great Recession Low: 33.3 (Dec. 2008)

129.2

Apr '19

135.8

131.3

134.2 126.3

124.3

May 19

Jun '19

126.1

126.8

126.5

130.4

132.6 120.0

Jul '19

Aug '19

Sep '19

Oct '19

Nov '19

Dec '19

Jan '20

Feb '20

Mar '20

Corbin Advisors

EUROZONE Improve:

-54pts

Worsen:

91%

+68pts JAPAN

U.S. MEXICO Improve:

Worsen:

77% +57pts

-20pts

CHINA

Improve:

-23pts

Worsen:

91% +73pts

LATIN AMERICA Improve:

Worsen:

85% +43pts

Improve:

46%

+14pts

Worsen:

36%

+9pts

Improve:

Worsen:

59% +44pts

SOUTHEAST ASIA Improve:

-60pts

Worsen:

57%

+47pts

INDIA

-16pts

Improve:

-16pts

Worsen:

68%

+31pts

BRAZIL Improve:

Worsen:

73% +48pts

-16pts

AUSTRALIA Improve:

Worsen:

62%

-11pts

New Region

Source: Johns Hopkins University Corbin Advisors

Improving Staying the Same Worsening

GLOBAL CAPEX

GLOBAL PMI 9% 9%

28%

48%

COMPANY INPUT COSTS 14% 9%

38% 62%

48%

82% 43% 9%

Dec '19

Mar '20

OIL & GAS MARKETS 17%

Dec '19

33%

77%

24%

33%

14%

Mar '20

U.S. CONSUMER CONFIDENCE 6% 6% 20%

24%

29%

Dec '19

Mar '20

U.S. UNEMPLOYMENT RATE1

17% 58% 53%

100%

66% 22%

14% Dec '19

88%

Mar '20

Dec '19

Mar '20

Mar '20 1 New

Corbin Advisors

measure

QoQ INVESTMENT TRENDS

GLOBAL INDUSTRIAL VALUATIONS 52%

49% 52%

40% 27%

24%

26%

22%

41%

35%

23% 14%

13%

32% 35%

24% 27%

17% 18%

17% 4%

Under

Fairly Sep '19

Dec '19

Over

Net Buyer

Net Seller

Mar '20

Holding Sep '19

2020 INDUSTRIAL ORDER RATES EXPECTATIONS OVER THE NEXT SIX MONTHS

Rotating

Dec '19

Liquidating

Mar '20

MOST COMPELLING INDUSTRIAL INVESTMENT THEMES Cost-cutting Initiatives

33%

Consolidation Story

Accelerate Somewhat

27%

21%

Diversified

Remain the Same Decelerate Somewhat

46%

Pure Play

Strongly Accelerate

93%

50%

Aftermarket Component

20%

53%

Oil Exposure

60%

80%

Strongly Decelerate

N. America Exposure

33%

Asia Exposure

14%

European Exposure

40% 20%

Large Cap

27%

Small Cap

Short-cycle

Long-cycle

Mid Cap

21% 0%

Corbin Advisors

COMMERCIAL AEROSPACE BULLS VS BEARS Bulls

Bears

Dec '19

Mar '20

Sep '19

Dec '19

Mar '20

Sep '19

Dec '19

Mar '20

Sep '19

Dec '19

Mar '20

Dec '18

Sep '18

Jun '18

Mar '18

Dec '17

Grow Faster

Sep '17

100%

Jun '17

80%

Mar '17

60%

Dec '16

40%

Sep '16

20%

Jun '16

+13 pts

Mar '16

-20%

13%

+6 pts

Dec '15

-40%

33%

80% 60% 40% 20% 0%

Sep '15

-60%

-5 pts

WATER

-40 pts

Jun '15

Water

Grow Slower

+19 pts

27% 20%

Sep '19

47%

Jun '19

-25 pts

Dec '18

Defense

Sep '18

46%

Jun '18

Grow Faster

Mar '18

Dec '17

Sep '17

+24 pts

Jun '17

47%

Mar '17

20%

Dec '16

+12 pts

Sep '16

Materials

Jun '16

+26 pts

Mar '16

47%

Dec '15

20%

Sep '15

-1 pt

Grow Slower

AGRICULTURE

Jun '15

100% 80% 60% 40% 20% 0%

+17 pts

Chemicals

+46 pts

Jun '19

-7 pts 0%

Agriculture

Jun '19

Indl. Equip. & Comp.

33%

Jun '19

+64 pts

13%

Mar '19

71%

-30 pts

Mar '19

-43 pts 0%

Distribution

Mar '19

Resi Construction

Grow Faster

53%

Mar '19

+29 pts

Dec '18

72%

+14 pts

Sep '18

21%

Metals & Mining

Jun '18

+72 pts

Mar '18

72%

14%

Dec '17

+59 pts

Sep '17

73%

Jun '17

-29 pts 0%

Mar '17

Non-Resi Construction

Dec '16

+30 pts

Sep '16

80%

Jun '16

UNCH 0%

Mar '16

Transportation (Trucks)

AUTOMOTIVE 100% 80% 60% 40% 20% 0%

Dec '15

+37 pts

Sep '15

80%

Jun '15

-7 pts 0%

-29 pts

Grow Slower

+29 pts

Machinery

Building Products

Dec '18

93%

Sep '18

UNCH 7%

Jun '18

Grow Faster

Automotive

Mar '18

Dec '17

Sep '17

Jun '17

Mar '17

Dec '16

Sep '16

Jun '16

Mar '16

+58 pts

Dec '15

100%

Sep '15

-29 pts 0%

Commerical Aerospace

Jun '15

100% 80% 60% 40% 20% 0%

Grow Slower

Corbin Advisors

research@corbinadvisors.com

270 Farmington Ave, Suite 260 Farmington, CT 06032 corbinadvisors.com