MoldMaking Technology

AUG 2018

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INDUSTRY FOR MORE INFORMATION: Michael Guckes, Chief Economist, Gardner Intelligence mguckes@gardnerweb.com / gardnerintelligence.com 54 MoldMaking Technology —— AUGUST 2018 PRESENTED BY Growth in Electronics Outpaces National Economy Data through the first quarter of 2018 points to an industry in the midst of above-average growth. Gardner Intelligence has collected and reviewed the reported financial results of over 90 publicly traded electronics firms through the first quarter of 2018, and it has found an indus- try that has been experiencing above-average growth that is likely to continue. Calculated on a year-over-year basis, inflation-adjusted revenue growth at the end of March was 6.9 percent. Earnings before interest, taxes, depreciation and amortization when measured using the same technique was up 4.0 percent at the end of the first quarter. In comparison, May 2018 figures from the Federal Reserve indicate that U.S. total economic growth increased 2.5 percent, which suggests that the industry grew more than twice as fast as the overall economy. Year-on-year capital-expenditure growth ending in the first quarter of 2018 showed more than an 11-percent increase. However, these elevated figures are, in part, a result of contracted spending between the fourth quarter of 2016 and the third quarter of 2017. Among all firms reviewed in this study, 56 are tracked by one or several Wall Street analysts who also provide forecasts for revenues and earnings. Aggregating these forward-look- ing results, revenue growth will slow from nearly 7 percent in mid-to-late 2018 to nearly unchanged (or 0 percent) between the third and fourth quarters of 2019. Similarly, growth in earnings is projected to climax in late 2018 at just over 8 percent before slowing to a low of just above 2 percent in late 2019. Capital spending data that Gardner Intelligence has inde- pendently collected from shops and fabricators corroborates this view. Data on expected spending hit a recent low in mid- 2017 and has since rebounded through the latest available data collected in May. One area of continuing concern within the electronics industry is the relative under- performance of small machine shops and fabricators (or those with fewer than 20 employees). Since early 2017, small shops have reported periods of both modest expan- sion and contraction. In comparison, larger shops with more than 100 employees have experienced history-breaking growth during the same period. Applying Gardner Intelligence's multi- lens analytics approach to the electronics industry, the combination of actual and forecasted financial results, macroeconomic data and proprietary survey data all suggest that industry growth will exceed overall economic growth for the country. Machine shops and fabricators of all sizes are likely to benefit over the next 18 months with a bias toward larger shops experiencing greater opportunities for growth. Electronics Industry Actual and Estimated Results 2015 2016 2017 2018 2019 -20% -10% 0% 10% 20% Real YOY% Change Capital Spending Free Cash Flow EBITDA R evenue

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