Kickin’ tyres in Trumpsville

By Business & Finance
13 December 2016

Aidan Donnelly on the mindset of global industrialists post-US election.

As we enter the twilight of another year, it is natural for investors to cast their minds forward and formulate a game plan for the year ahead.

The starting point for many a strategy will revolve around the outlook for company sales and profits. Not surprisingly a key driver of this is the growth of the various economies around the world.

Over the last few years we have seen limited sales or revenue growth from companies as the slow economic recovery forced them to focus on other levers to generate profits. Now, with the majority of these alternatives nearly exhausted, the need to grow revenue is more acute, and so is the importance of global economic growth.


When it comes to reading the tea leaves for what lies ahead for the global economy, industrial companies tend to have the ‘gold label’ of tea leaves. Given the fact that their end markets are so diverse and their geographic footprint so wide, tapping into their thoughts and forecasts always proves to be a worthwhile exercise.

It was with this in mind that I recently headed off to the US to meet with senior executives from a large number of global industrial companies to garner their thoughts about their businesses and what the future has in store.

The timing of this trip could not have been better as it coincided with the US presidential election which afforded me the opportunity to assess real time management sentiment towards the (unexpected) Trump election victory – and you might be surprised by what I observed.

For many industrial manufacturers, the outlook for 2017 was already unusually murky, with the Trump result adding an additional layer of uncertainty to forecasts.


Away from the election, there were a few common themes emerging from company managements. Overall the tone remains one of cautious optimism. In general, the outlook is relatively positive into 2017 for areas that have observed growth during the past couple of years: building/construction products, specialty chemicals, packaging & coatings, and maintenance/repair related spending.

The commodity headwinds that have been so prevalent for the last 18 months are dissipating – they remain a drag on sentiment but less so now. In terms of beacons of hope, the commentary from construction related companies, particularly those involved in the residential market, remains positive.


With corporate balance sheets in good shape and cashflow from operations remaining strong, there was much focus on the future use of this cash. Of course managements are eager to stress their conservative credentials when it comes to this, with many continuing to opt for returning excess cash to shareholders via increased dividends or buying back their shares. 

But mergers and acquisitions (M&A) continue to be an important source of future growth for companies, and where prices are reasonable – which is getting harder to find – company managements are eager to do deals.

On the basis that demand growth will remain ‘challenged’ in 2017, there is an increased management focus and emphasis on leveraging their competitive position in an attempt to gain market share. This is being achieved by ‘investing’ in sales and distribution through ‘feet-on-the-street’, new products, and price discipline. The combination of these factors may add low-single-digit percentages to overall sales growth forecasts.


aidan donnelly

Aidan Donnelly

Of course the world is not just a homogenous block when it comes to economic growth. Therefore it is always interesting to elicit opinions on how the various geographic regions are doing.

increased management focus and emphasis on leveraging their competitive position

Some managements pointed out that their US business had slowed into the third quarter of this year, but that there was hope for a post-election bounce.

Any demand uplift from a Trump pro-growth agenda would be welcome but as of yet is not being included in the forecasts.

The emerging market businesses appear better, but still mixed, with places like Brazil improving from the recent tougher times and China being better than anticipated.

China was also noted a few times as a ‘downside risk factor’ should it decelerate. It was remarked that Western Europe has slowed recently and this is a trend worth watching, but on the positive, Eastern Europe has stabilised.

Looking forward though it needs to be borne in mind that any move by the incoming US president to a more protectionist stance on trade – and I don’t mean just building a wall – would have a detrimental impact on some emerging market countries, particularly south of his border.


On the topic of the election itself, like most people the result came as a big surprise to the company managements. What I found more interesting though was the almost lack of discussion of the result among the large group of investors that I was with.

When I questioned some of the ‘American brethren’ in the group the sense I got was of election fatigue. In many cases people have had their fill of the election and now that the result is in, it’s a case of just getting on with life. If only it was that easy.

we may no longer be in the land of the free, but we are certainly in the  home of the brave

Everyone has seen the volatility in oil prices this year, but what may not be as well-known is the fact that other commodity prices have gone through a similar experience.

Many of the company executives noted that most commodity prices appear to have bottomed but there is a need for them to continue to move higher before we see those industries increase capital expenditure plans and therefore generate demand improvement for the heavy machinery equipment makers exposed to the mining, agriculture and energy end markets.

oil-and commodity-prices


Of course this time of year also marks the beginning of, as our American cousins call it, ‘the holiday season’. From a consumer perspective there were some interesting insights from the two largest parcel delivery companies in the world – UPS and FedEx – in the area of B2C (business to customer) ecommerce.

The companies pointed out that currently only 8-10% of US retail sales are carried out online, but that this will continue to grow strongly due to the millennial generation. Cross-border ecommerce is growing at an even faster rate.

The challenge for both companies is to use technology solutions to improve the customer experience (time/location/flexibility of delivery) while at the same time optimising profit margins for them.

So after my week abroad, what’s my conclusion? Going forward, we may no longer be in the land of the free, but we are certainly in the home of the brave. 

About the author: Aidan Donnelly is head of Equities at Davy Private Clients. Views expressed in this article reflect the personal views of the author and not necessarily those of Davy. Follow him on Twitter @aidandonnelly1. J&E Davy, trading as Davy, is regulated by the Central Bank of Ireland.