The 2016 third quarter tED magazine/Baird research shows continued concern over revenue for the rest of last year, but hope for the future.
We received 110 responses to our survey, with the total aggregate annual revenue of the respondents at more than $20 billion. On the electrical side, revenue was flat in the 3Q for the fifth straight quarter, while revenue was up 4.2 percent in Datacomm. However, when asked about potential revenue increases for first quarter of 2017, respondents say they expect a 2.3 percent increase on the electrical side, and a 4.7 percent increase in Datacomm revenue.
Baird initially believed those numbers were a little optimistic, saying industrial spending is still a drag on the economy. However, Baird does say, “we heard encouraging feedback regarding non-residential construction backlogs from the distributors we spoke with. Net, we believe that a mild acceleration in industry growth vs. current levels is possible.”
Some of the quotes from the tED magazine/Baird research include:
“Fully expect next spring when the building season starts again that the (construction) business is still going to be healthy.”
“Backlog is building with a few good projects on the horizon.”
“The lighting business continues to be pretty strong, leading the way for us.”
Also, the late November decision by OPEC nations to reduce oil supply may have an impact on industrial spending, but it is still too early to tell.
Meanwhile, the tED magazine/Baird research shows that for the third quarter in a row, inventory increases were less widespread than forecast, and the outlook for the coming quarter was lowered. Only 22 percent of electrical respondents reported an inventory increase last quarter, compared with the 26 percent who had predicted an increase in the second-quarter survey and the 26 percent in that survey who reported an increase in the second quarter. “Looking forward to [the fourth quarter], 26 percent of respondents expect to seasonally de-stock inventory, which would represent a moderate decline vs. last year’s 31 percent actual experience,” Baird remarked. “Conversely, datacomm trends exceeded expectations as 30 percent of respondents reported an inventory increase” in the third quarter, very close to the 29 percent who had reported an increase in the second quarter but well above that survey’s forecast of a 22 percent rise in inventories for the third quarter. As with electrical respondents, 26 percent of datacomm participants expect to reduce inventories in the fourth quarter.
Baird listed a couple of remarks that suggest M&A activity will pick up in the near future. “Consolidation/acquisition talk really seems to be picking up a lot of momentum right now, both manufacturing and distribution,” one respondent wrote. Another stated. “M&A is obviously very popular, it’s getting easier and easier to sweep up the successful regional companies.”
The survey was completed before the November elections but included some interesting results about the impact the elections were having on decision making. Only 12 percent of respondents reported they had “deferred any business decisions pending the election,” a sharp decrease from the 38 percent who said they had done so before the 2012 election. The 12 percent matched the share of respondents who reported that outcome in an all-industry survey of corporate and trade association economists release in October by the National Association for Business Economics. Among the 12 percent of the Baird respondents who said they had deferred decisions, 62 percent listed hiring decisions; 54 percent, investment spending; 38 percent, maintenance spending; and 31 percent, employee compensation/benefits.
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