Inflation is soaring, who will bear the costs, how much pricing power does your firm have?
Our latest Industrial Machinery and Process Industries Barometer indicates robust financial performance in past quarters, while supply chain disruptions and rising costs have inflated producer prices.
Pricing has been a clear answer of many sectors to protect margins and manage shortages. However, as consumers face constraints on their ability to pay, and with geopolitical blocks separating even further, A&M expects these dynamics to have negative midterm effect on volumes and lead to some scarcities.
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Key Barometer findings:
- Commodities and energy: Commodity prices started soaring again in mid-February 2022, stressed further by the Russian war in Ukraine. We expect high prices to endure as alternative sources take time to come online
- Semiconductors: With severe global chip shortage remains a key issue across all segments, no relief in sight until end of year. Average delivery lead time now 26 weeks vs. 12 weeks in a normal market
- Industrial Machinery: A&M’s index of major Industrial Machinery players shows robust average revenue growth of 9% YoY, while average EBITDA improved by 8% YoY. Despite this share value has declined by 10% YoY in the same period, as investors take flight from market turbulence
- Process Industries: A&M’s Construction Materials and Commodity Chemicals indices show suppliers have taken advantage of tightness of supply to strengthen EBITDA position ahead of revenue. However, growth has slowed in recent months and inventory has increased. Recently share prices have declined 14-18% on average in the last quarter
About the Industrial Barometer
The barometer captures the most important drivers of input cost and as series of leading and lagging indicators of company performance. Where indexed, metrics are set with January 2016 as a base (=100). Industrial machinery peers consist of top European listed players by revenue. Commodity Chemicals and Construction Materials peers consist of top global listed players by revenue.
For electricity prices, manufacturing job vacancies and unemployment metrics, we are tracking movements within selected countries with important global market share of the industrial sector. U.S. electricity prices are based on average price of the top 10 largest manufacturing states by GDP (gross domestic product).
For further information on the Industrial Barometer please contact Florent Maisonneuve or Gerrit Loots.
Related Insights
Our latest Aerospace & Defence (A&D) Barometer indicates continued pressure and supply risks remain on all key materials, especially skilled manufacturing labour. The financial outlook remains positive but profitability and cash is likely to come under pressure in the next two quarters.
Traditional approaches to performance improvement have tended to focus on EBITDA improvement or cashflow improvement as separate challenges that can be addressed by separate teams and are owned by separate functions. Sales are responsible for growing revenue; procurement is responsible for lowering cost; operations are responsible for inventory; and finance and shared service centers are responsible for cash. However, we believe that integrating these approaches is critical for Aerospace & Defense industry organizations. Those with a unified capital management strategy will not only weather the current turbulence but emerge as market leaders in the post-COVID-19 world.
Read A&M's thoughts on how the airline industry is responding to the Covid-19 pandemic in our article published in the AIRA Journal.
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