Here are the top 10 themes we identified from 4Q18 earnings calls of 20 public advanced manufacturing companies, which focused on geographic and subsector trends.
1. Geographic developments: Asia-Pacific is leading
In terms of growth, all subsectors continue to cite Asia-Pacific as the most rapidly evolving region. Within the region, China continues to lead demand growth for many products. Customer uncertainty created by trade policy discussions between China and the US is a point of concern for chemicals peers. In Europe and North America, revenue growth has been the strongest for aerospace and defense (A&D) peers, while industrial products peers had mixed results in Europe and generally positive results in North America.
2. Financial initiatives: capital expenditures on the rise
Owing to the unexpected drops in stock prices, many peers experienced an increase in share buyback activity during late 2018. Initiatives, such as dividend commitment, including plans for increasing payouts, continued in this quarter. Leaders also saw an increase in capital expenditures to support future growth.
3. Developments in end markets: optimistic outlook supported by growth
Strong growth in air traffic and high load factors are continuing to drive demand for commercial aircraft. Expansion of defense budgets across countries has increased the demand for military equipment. Increased demand for advanced materials is being observed in nonresidential construction whereas spending by oil and gas customers have returned to more conservative levels due to price volatility. More than one peer cited the strength of a diversified product portfolio as a hedge against market volatility in individual customer segments.
4. Working capital and cash flow management: changes observed from prior quarter
Strong prioritization of working capital discipline, supported by productivity and cost-control programs has ensured continued improvement of cash flow. However, increased pension plan contributions have created a drag on cash flows for some peers whereas rising inventory levels has also posed challenges for some.
5. Innovation and new product or service launches: focus on digital technologies and R&D
Peers across subsectors have increased their R&D budgets as they are benchmarking their investments against recognized industry leaders. Some of them are allocating resources to specific business units and product lines to give business unit leaders more autonomy and to better assess returns on investment. The trend of reorganizing digital offerings into single business units within the company to support enterprise-wide collaboration has also been observed. Partnerships are fostering innovation, whether with clients to produce highly customized offerings or with third parties to develop and commercialize new technologies. The focus on digital and analytics, for internal operations and for product and service offerings, continues to strengthen. Internet of Things (IoT) continues to be a driver for the creation of connected solutions, such as building management systems and satellite networks.