Most industrial sector executives expect to cut costs in 2017 and a majority plan to either cut capital expenditures or at least keep them the same, according to survey results from the Baird Global Industrial Conference held earlier this month.
Fifty-one executives were surveyed at the conference, with 80 percent saying they anticipate cutting costs in 2017. More than a quarter of the group expects capital expenditures to go down in 2017 and 43 percent plan to keep them at similar or unchanged levels from 2016.
Analysts from Milwaukee-based Robert W. Baird & Co. Inc. said they came away from the conference with the impression that the challenges from low commodity prices were easing somewhat and that mergers and acquisitions remained an important priority for achieving growth.
“Overall, we remain cautiously optimistic about the growth outlook for the industrial sector,” said Jon Langenfeld, head of global equities at Baird.
Executives in the survey rated bolt-on acquisitions as the top priority for capital allocation, while transformative mergers and acquisitions were listed as the lowest priority.
“M&A is clearly front-of-mind as an important source of growth in the industrial sector,” Langenfeld said. “Deal pipelines appear healthy, while valuations remain elevated in anticipation of longer-term end market recovery.”
Across industries, executives generally expected to see growth unchanged over the next 12 months, especially in mining, commercial aerospace, and U.S. residential and commercial construction. Respondents saw the potential for growth in the energy sector while they expected growth to decelerate in automotive.
Respondents expect the Internet of Things to have the biggest impact on the industrial market over the next three to five years.
The conference started on Election Day, giving Baird analysts insight into executive reactions in the immediate aftermath of Donald Trump’s victory.
The analysts highlighted a number of industries that could benefit from a Trump presidency, including defense, with the potential for increased spending and the lifting of sequester caps. Heavy equipment original equipment manufacturers, engineering and construction firms could benefit from an increase in infrastructure spending. The automotive industry could benefit if employment, confidence and income improve, helping to increase demand.
The renewable energy industry, global manufacturers and transport firms will have to take a wait-and-see approach until Trump’s policies become clearer, the analysts said.
“Nobody truly knows what his actual policies are, so at this point it’s tough to say what impact a Donald Trump presidency will have on our business,” a global pump manufacturer told Baird.
Industrial companies with exposure to the oil and gas market have struggled as prices have remained at lower levels. One respondent told Baird it’s more important for oil prices to stabilize than it is for them to rise to higher levels.
“Something they can put in their models to justify investing. Our customers can make good money at $60/bbl; it doesn’t need to go back to $100/bbl,” the process industry respondent said.
The Baird report on the conference includes 10 southeastern Wisconsin based companies, including Actuant, Badger Meter, Brady, Briggs & Stratton, Douglas Dynamics, Twin Disc, Modine, Snap-on, A.O. Smith and Generac.
The company has outperform ratings on Actuant, Modine, Snap-on, A.O. Smith and Generac while the others have neutral ratings.
