PricewaterhouseCoopers' Trendsetter Barometer tracks the business issues and best practices of privately-held companies identified in the media as the fastest-growing U.S. businesses. It incorporates the views of 309 CEOs: 128 from companies in the product sector, and 181 in the service sector, ranging in size from approximately $5 million to $150 million in revenue/sales.
NEW YORK, March 5, 2007 (PRIME NEWSWIRE) -- CEOs of the nation's fastest growing companies planning for the year ahead are more optimistic about the U.S. and world economies as compared to the last quarter, raising revenue targets slightly by 0.7 percent, and citing plans for increased hiring and new investments. Concerns about market demand and a lack of qualified workers were named as the top two barriers to growth over the next 12 months, with a lesser but rising concern about decreasing margins. Gross margins remained positive, however, with price increases keeping pace with rising costs.
Optimism Strengthens: Seventy percent of "Trendsetter" CEOs are optimistic about the domestic economy's prospects over the next 12 months, up from 66 percent in the prior quarter. Optimism levels are now in line with those cited one year ago (71 percent). Only seven percent of those surveyed are pessimistic.
Similarly, 73 percent of fast-growth companies selling abroad are optimistic about the outlook for the global economy over the next 12 months, up sharply from 61 percent in the prior quarter. "Fast-growth private companies are now as optimistic about the economy and their business prospects as they were in the fourth quarter of last year," said Rich Calzaretta, national leader of PricewaterhouseCoopers' Private Company Services practice. "Optimism waned throughout 2006, bottoming out in the second quarter, most likely a result of high energy costs and interest rates. While we're clearly seeing a more upbeat view among "Trendsetter" CEOs, properly gauging market demand will continue to be a challenge."
Steady Revenue Targets: Revenue growth of 21.9 percent is projected for the next 12 months, slightly off from the 22.2 percent estimated in 4Q05. Service sector companies were more bullish, projecting a 24.0 percent growth rate, while product firms remained cautious at 19.0 percent, same as last quarter.
"Trendsetter" CEOs' confidence about meeting revenue targets over the next 12 months may stem from what they see as a relatively steady economy," said Calzaretta. "Yet the ability to manage costs in the current environment remains a great concern."
Potential Barriers to Growth: While "Trendsetter" CEOs continued to identify common challenges, concerns dropped off from the prior quarter:
* 52 percent of respondents are concerned about the possibility of weak market demand over the next 12 months, off from 61 in 3Q06; * Availability of qualified, skilled workers was cited by 50 percent as a potential barrier to growth, and is high in both service and product sectors -- 53 percent and 45 percent, respectively -- compared to 52 percent last quarter; * Concern about the impact of rising energy prices dropped from 31 percent to 26 percent; * Concern about higher interest rates also dropped this quarter, from 34 percent to 26 percent, despite the finding that "Trendsetter" companies are paying, on average, interest rates 99 basis points higher than one year ago.
However, concern about profitability over the next year rose from 22 percent to 28 percent, and may become a problem as "Trendsetter" companies expand. Additionally, lack of capital for investment was of more concern (up from 16 percent in 3Q06 to 20 percent) as more "Trendsetter" firms were involved in bank financing in 4Q06.
New Hiring Plans: Currently, 75 percent of "Trendsetter" companies plan net additions to their workforce over the next 12 months, with only three percent planning a net reduction. Overall, new hires are expected to add an average 8.4 percent to the composite workforce of these companies, rising 0.8 percent from the prior quarter, and in line with 9 percent one year ago.
An increase in planned new hires was seen for both prospective full-time employees (7.4 percent, up from 7.0 percent last quarter), and full-time equivalent temps or contract employees (1.0 percent, up from 0.6 percent). The service sector now plans to add 10.8 percent to its workforce, while the product sector expects a 5.9 percent rise, down 3.8 points from the prior quarter.
Strong demand was noted for the leading hiring categories: Additional professionals/technicians will be sought by 50 percent of "Trendsetter" businesses (similar to the prior quarter); sales/ marketing personnel by 35 percent (down three points); and white collar employees by 21 percent (down four points). Production workers will be sought by 12 percent (down five points); and skilled workers by 12 percent (same).
Increased Spending Plans: Currently, 40 percent of these fast-growing companies are planning major new investments in their businesses over the next 12 months, off slightly from 43 percent in the prior quarter and down from 46 percent in 4Q05. However, their level of spending is expected to be higher -- equivalent to 14.2 percent of revenues -- than the average of 12.5 percent estimated in the prior quarter. The slight quarter-to-quarter reduction in the number of firms planning new investments was due to some softness in the product sector.
These major new investors are especially fast-growers, expecting revenue growth of 29.4 percent over the next 12 months versus 16.9 percent for all others, or 74 percent faster.
CEOs expect increased budgeting in the following categories over the next 12 months:
* Information Technology 47% (up 6 points from the prior
quarter)
* Sales promotion 36% (up 3 points)
* New product/service development 35% (off 1 point)
* Facilities expansion 28% (off 5 points)
* Advertising 28% (off 2 points)
* Geographic expansion 26% (off 3 points)
* Research and development 20% (off 2 points)
Gross Margins Remain Positive: Twenty-nine percent of "Trendsetter" CEOs reported increased gross margins in the prior quarter while 14 percent reported a decrease, for a net of 15 percent increasing. This is similar to the prior quarter (18 percent increasing), but below one year ago (21 percent increasing).
Yet looking ahead over the next 12 months, 28 percent cite decreasing margins as a potential barrier to growth -- up six points from 3Q06, and up from 24 percent last year.
Costs and Prices Remain on the Upside: 31 percent reported increased costs and 11 percent cost decreases -- a net of 20 percent with increased costs (similar to last quarter's 23 percent).
Price increases were reported by 24 percent and decreased prices by seven percent, for a net of 17 percent increasing (similar to last quarter's 20 percent). Overall, increased prices still appear to be chasing increased costs.
Opportunities abroad: 47 percent of "Trendsetter" CEOs report sales abroad, 52 percent of which are product companies and 43 percent service firms. 4Q06 sales were up for 48 percent of the companies, about the same for 51 percent, and down for only one percent. Revenue contribution from international markets is projected at an average of 16.6 percent of total revenues for the next 12 months, same as the prior quarter (16.7 percent).
Importantly, "Trendsetter" companies selling abroad expect to grow total revenue by 23.3 percent over the next 12 months versus 20.7 percent for companies only operating domestically, for a 13 percent edge in pace of growth. The differential was closer this quarter as domestic-only companies had greater revenue targets -- 20.7 percent versus 17.5 percent in the prior quarter.
"Private company CEOs are increasingly positive about their ability to grow their companies and take advantage of the opportunities globalization offers for new markets, new products and new customers," said Calzaretta. "If these CEOs are to make the most of global opportunities for the long term, however, they must fully understand the realities and risks of funding their growth, managing dispersed resources, and competing with a growing set of international players."
PricewaterhouseCoopers' "Trendsetter Barometer" is developed and compiled with assistance from the opinion and economic research firm of BSI Global Research, Inc.
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