Corbin Advisors Releases Q2’24 Inside The Buy-Side^® Earnings Primer^®

FARMINGTON, CT – July 11, 2024 – Corbin Advisors, a strategic consultancy accelerating value realization globally, today released its quarterly Earnings Primer®, which captures trends in institutional investor sentiment. The survey, which marks the 59^th issue of Inside The Buy-Side^® Earnings Primer®, was conducted from June 6 to July 3, 2024, and is based on responses from 73 institutional investors and sell-side analysts globally, representing ~$2.2 trillion in equity assets under management.

Following last quarter’s survey that found increasing optimism amid positive year-over-year earnings expectations and easing recessionary concerns, the Voice of Investor® captured in this quarter’s survey registers a tempering of bullishness and more neutral sentiment, though outright bearishness remains at bay. Despite increased concerns over the consumer, the political landscape, and the economy, including cooling expectations for 2024 U.S. GDP growth, surveyed financial professionals largely expect Q2’24 results to be in line with both last quarter and relative to consensus, and annual guides to be maintained.

Rebecca Corbin, Founder and CEO of Corbin Advisors, commented, “With earnings season about to commence, our survey finds sentiment has moderated from the overly zealous bullish stance captured over the prior two quarters, with investors characterizing their view as more neutral overall. The frothy growth expectations abundant in the beginning of the year are fizzling amid renewed concerns about a potential U.S. recession and escalating political uncertainty, both in the U.S. and globally, and a beleaguered consumer. Despite tempering optimism, expectations for Q2’24 results and annual outlooks largely remain intact, underscoring a potential underappreciation for known and emerging headwinds, including the impacts of the higher interest rate environment, the pall cast on spending amid an election year, an increasingly challenged pricing environment, and the resurgence of supply chain issues. In addition to these, leading topics for executives to address on upcoming earnings calls include profitability and expense management, growth, and, of growing importance this quarter, capex and investment priorities. As companies mull over guidance strategy, consideration should be given to derisking the potential for earnings misses through proactive expectations management. With elevated consensus estimates and the ‘back-half loaded’ narrative showing cracks, it’s important to keep in mind the compounding effects of the higher interest rate environment, slowing growth, broad-based cost-cutting efforts, and moderating capex brought on by increasing uncertainty over the U.S. election.”

Investors characterizing their sentiment as Neutral to Bullish or Bullish falls to 35% from 52% QoQ, with outright bulls pulling back more than three-fold amid tempering corporate narratives. To that end, 41% of survey respondents report executive tone as Neutral to Bullish or Bullish, a decrease from 64% over the same period. Taken together, QoQ changes in investor sentiment and executive tone represent one of the top four largest pullbacks in optimism over the prior five-year period.

Continuing, the number of respondents expecting a recession has gained steam this quarter, growing from 39% to 56%, representing a definitive bucking of the trend observed over the past year. The majority of those calling for a recession expect landfall in 2025.

Further, a higher-for-longer interest rate environment and global election malaise is countering the exuberant expectations for growth identified in prior surveys. More investors, 49%, now expect 2024 U.S. GDP to be In Line with 2023, up from 39% QoQ, while those expecting annual GDP to come in Higher than 2023 declined from 33% to 21%. Investors are largely prioritizing both margins and growth in equal parts at this time, though emphasis on the latter increased QoQ. In general, views on growth and margins across the survey are decidedly split, reflecting mixed perspectives toward the trajectory of the economy.

Leading concerns this quarter include geopolitical risks, election turbulence, and consumer health, with the latter nearly tripling in concentration QoQ. To that end, 51% expect consumer confidence to Worsen over the next six months, an increase from 35% QoQ.

Kim Forrest, Founder and Chief Investment Officer at Bokeh Capital Partners, commented, “The election year politics and high interest rate environment — with food and energy costs still high — are making for a sad consumer.”

Still, 53% expect earnings results to be In Line with consensus, and while Revenue, EPS, Operating Margins, and EPS each saw quarterly improvement expectations moderate slightly, the majority anticipate performances to hold firm, if not accelerate. Across all KPIs, annual guides are expected to be maintained.

Investors continue to rank Debt Paydown as the leading use of cash, while tolerance for debt levels has receded; those favoring a 2.0x or lower Net Debt-to-EBITDA ratio increased to 70% from the 57% level registered last survey. Reinvestment is a close second preferred use at 57%, up from 53% QoQ, with most encouraging Maintaining current levels of growth capex. That said, those favoring Moderating spend, while still a low number, quadrupled. Notably, conserving cash or, Dry Powder, doubled in interest to 32% as the third preferred use.

Regarding broader views on global economies, India garners the most definitively positive outlook over the next six months, followed by Eastern Europe and the U.S., while views on UK’s strength sputter.

Despite somewhat tempered views from the bullish highs captured last quarter, support remains intact for most sectors. Bulls continue to embrace Tech and Healthcare, while interest rate-sensitive REITs extend their bearish margin to more than double the next closest out-of-favor sector, Consumer Staples. Mixed sentiment is most evident in Energy, which registers third among most bullish sectors, while simultaneously seeing the largest influx of bears QoQ.