Wall Street Upgrades Near-term View for Electronics Industry

The electronics industry has outperformed Wall Street expectations, experiencing 4.9% earnings growth through the first quarter of 2019.

Wall Street’s latest near-term outlook for the electronics industry has markedly improved since Gardner’s last review of the industry based on third quarter 2018 actuals and projections. Reported revenues and earning from the fourth quarter of 2018 and first quarter of 2019 significantly beat expectations in part due to better-than-expected economic and business conditions while America renegotiates its trade agreements with multiple major trading partners.

Based on data from among the 85 firms used in our study, actual year-over-year earnings growth ending in March was 3.3%, besting Wall Street’s beginning-of-the-year consensus estimate of -1.0%. The 4.9% actual first quarter earnings growth was also significantly better than the expected 1.3% contraction in earnings. While the fourth quarter of 2018 and first quarter of 2019 actual results beat estimates, Wall Street’s outlook in 2020 has dampened significantly with expectations for revenue and earnings growth now both in the single-digits area, down from the double-digit growth formerly expected during 2020.

Electronics manufacturing data collected from Gardner’s Business Index through May suggests that the industry is stabilizing after coming off nearly two years of accelerated growth. Year-to-date data for supplier deliveries, new orders and production suggest modest growth that is in line with historical norms. Contractionary readings in both backlogs and exports have pushed the total index reading among manufacturers serving the electronics industry to below 50, indicating a net contraction in business activity. That total new orders continue to register above 50 while export activity contracts implies that domestic demand for electronics products is replacing lost demand from foreign consumers of manufactured electronics.

Gardner’s year-to-date survey data also suggest that electronics manufacturers are experiencing different business conditions depending on size. Larger firms are reporting strongly accelerating new orders activity, but firms with fewer than 50 employees are reporting flat to contracting new orders activity. Although smaller firms have reported experiencing contracting new orders activity, production has remained stable as firms deplete backlogs.

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