NEW YORK, Aug. 16, 2007 (PRIME NEWSWIRE) -- As optimism in the U.S. and world economies continue to remain strong, senior executives of large consumer products companies raised their own companies' revenue growth targets over the next 12 months to an average of 6.3 percent, up from a reported 4.8 percent in the first quarter of this year, and on par with projections a year ago (6.2 percent) according to PricewaterhouseCoopers' Retail & Consumer Industry Practice's Consumer Products Barometer.
Primary concern about oil/energy prices dropped sharply this quarter (down 19 points to 51 percent), along with anxiety about market demand (down 13 points to 17 percent from Q1). Nearly three-quarters (72 percent) of executives are considering other business initiatives over the next 12 months, led by M&A activity (51 percent), an increase of 15 points, making it nearly on par with the consensus. In fact, prospective M&A activity is higher among the oil/energy barrier segment -- 63 percent versus 39 percent. The major focus of M&A activity reported in this segment is the purchase of another business (63 percent).
"We saw an interesting up-tick this quarter in revenue growth projections, specifically among those consumer products companies concerned about oil/energy prices," said John Maxwell, leader of PricewaterhouseCoopers' Retail & Consumer Industry Practice. "We believe these companies have passed along costs by raising prices. As a result, revenue growth projections shot up this quarter, which also attributes to the increase in global economic optimism and anticipated M&A activity within the industry."
The Barometer shows that price flexibility is positively impacting large consumer products businesses. Fifty-one percent increased their prices, 15 points higher than both the previous quarter and a year ago (36 percent each). In fact, more of the oil/energy vulnerable companies raised their prices: 56 percent versus 46 percent for their non-vulnerable peers. Costs were also higher for 64 percent -- including 78 percent of the oil/energy barrier group and 50 percent of their peers.
Executives cited a tightening of margins in Q2: only 26 percent reported increases while 36 percent experienced decreasing margins, making for a net minus 10 percent. Directionally, it appeared worse for the oil/energy segment: 22 percent had increased margins and 41 percent saw decreased margins, resulting in a net minus 19 percent. The non-vulnerable oil/energy group was offsetting at 31 percent up and 31 percent down. However, only 22 percent of the oil/energy potential barrier group cited decreasing profitability as a concern, down from 29 percent in the prior quarter.
Planned major investments of capital over the next 12 months were cited by 51 percent of executives, up three points from last quarter and well ahead of a year ago (34 percent). The Barometer found that 63 percent of the oil/energy barrier group is planning investments, compared with 39 percent of their peers. The overall level of planned investment was moderately high at 6.1 percent of total sales. Increased investments are expected in six areas within the next year: new product/service introductions (59 percent), marketing and sales promotion (49 percent), information technology (47 percent), advertising (45 percent), research & development (38 percent) and business acquisitions (36 percent).
Forty percent of executives are planning to increase their workforce over the next 12 months, up 10 points, but still well below the all-industry consensus of 52 percent. Thirteen percent of consumer products companies expect a net reduction in staff. On average, executives expect the size of their workforce will decrease slightly by 2.1 percent over the next 12 months due to larger layoffs; the consensus average expects a smaller decrease of 0.3 percent.
"Those companies most concerned about oil/energy in the past have turned bullish this quarter. We will have to see how things play out next quarter in order to determine if their optimism is a phenomenon or an indication of things to come," says Maxwell.
Special Issues Affecting Consumer Products Companies: Productivity Increases Expected
In the past 12 months, only 13 percent of senior executives of large consumer products businesses reported a decline in company productivity. While a small base, the company's recent decline in productivity caused 43 percent of these affected (6 percent of all surveyed) to cutback overall planned business investments, reduce workers to increase productivity and to utilize existing information technology more efficiently.
According to the Barometer, the majority of senior executives (57 percent) believe that their companies' productivity level was higher than the national average of 2.7 percent; only eight percent admitted a lower rate and 11 percent were about the same. The average productivity level estimated was 3.4 percent for the 76 percent answering.
Looking ahead over the next 12 months, 72 percent of executives believe that their companies' productivity will increase; only six percent expect a decrease, and eight percent expect it to remain flat. The average productivity level expected over the next 12 months was 4.2 percent for the 86 percent answering -- a notable gain of 24 percent over the present estimated level.
Special Issues Affecting Consumer Products Companies: Shared Service Centers
The Barometer reports that 36 percent of consumer products executives currently use a shared service center, and 11 percent plan to employ one over the next year, totaling 47 percent using or planning to use a center over the next year. Nearly all survey participants have shared service centers that are located domestically (88 percent), but 44 percent currently are or will be located in a foreign market.
The major reasons executives utilize or plan to employ a shared service center are to deliver cost savings (100 percent) and to increase productivity (84 percent). One-in-four of all consumer products businesses use shared service centers to support financial and accounting services (47 percent of users) and/or IT outsourcing (45 percent of users).
Note to editor:
PricewaterhouseCoopers' "Consumer Products Barometer" is a quarterly survey of top executives in 53 large, Consumer Products businesses (surveys conducted between May 5th and August 6th, 2007) compared with the 130 large, multinational company consensus.
PricewaterhouseCoopers' "Consumer Products Barometer" is developed and compiled with assistance from the opinion and economic research firm of BSI Global Research, Inc.
For more information about Barometer surveys, including recent economic trend data and topical issues, please visit our web site: www.barometersurveys.com
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