NEW YORK, Jan. 29, 2009 (GLOBE NEWSWIRE) -- U.S.-based industrial manufacturers are expecting revenue growth to turn negative over the next 12 months, according to the fourth quarter edition of the PricewaterhouseCoopers LLP Manufacturing Barometer. For the first time since the Barometer's inception in the third quarter of 2003, more manufacturers are preparing for negative growth (33 percent) than those expecting positive revenue growth (25 percent). Meanwhile, another 34 percent are expecting zero growth.
In the year ahead, manufacturing executives anticipate a sharper year-to-year drop-off in revenues, down to an average of minus 2.4 percent. Just one year ago, survey respondents forecasted a mean revenue growth of plus 5.4 percent.
"For the first time in the Barometer's history, industrial manufacturers are expressing significant concern over future revenue growth as worldwide markets face a recession and international sales continue to drop," said Barry Misthal, partner and industrial manufacturing sector leader at PricewaterhouseCoopers. "Their pessimism over revenue figures is being echoed in their anxiety over both the domestic and international economies, as global confidence levels reach an all-time low."
The survey found that nearly all respondents (98 percent) believe that both the U.S. and global economies declined last quarter. In addition, the majority of industrial manufacturers are pessimistic about their prospects over the next year, with 70 percent gloomy about the domestic economy and 69 percent negative about their international prospects.
For industrial manufacturers marketing abroad, international sales decreased in the fourth quarter, with only 28 percent reporting an increase and nearly half (44 percent) reporting a decrease. Even though the majority of international sales turned negative, the expected contribution of international sales to total revenues over the next 12 months remained high at 37 percent, an increase from last quarter's 32 percent.
Looking ahead over the next 12 months, lack of demand was cited as the chief potential barrier to growth by 85 percent of respondents, up three points from the third quarter. Meanwhile, decreasing profitability remained the second highest concern, cited by 62 percent of executives.
Also of note, worries about capital constraints rose 11 points in the fourth quarter and was identified as a chief concern for 37 percent of manufacturers. Concerns over oil/energy prices were cited by only 25 percent of manufacturing executives, due to the significant decline in commodity prices as crude oil dropped to $35-$40 per barrel.
The sharp decline in commodity prices, along with slashed interest rates, may signal the end of the cost-price spiral among industrial manufacturers. During the fourth quarter, only 25 percent of executives reported increased costs, compared to 66 percent in the prior quarter. In addition, more firms are reporting decreased costs (32 percent) and only 15 percent of manufacturers had to raise prices in Q4, compared to 54 percent in the third quarter.
"Industrial manufacturers may be able to take advantage of this period, when costs and interest rates are at all-time lows. However, a deflationary marketplace can also be detrimental to margins, so executives will need to hold their price points and continue to drive sales in order to stay successful," said Misthal. "Currently, there is a significant slowdown in industrial activities everywhere -- in both developed and emerging economies -- making it important for manufacturers to continue to harness international sales to remain competitive."
Plans for major new investments of capital remained on pace with last quarter at 33 percent. The majority of respondents (57 percent) plan to increase operational spending over the next 12 months, with most focusing on geographic expansion (30 percent) and information technology (28 percent). Plans for M&A activity are consistent with last quarter (32 percent), as was specific focus on expansion to new markets abroad (32 percent).
Given the current financial environment, hiring plans remain minimal, with only 10 percent of manufacturers adding new hires. In addition, 35 percent of respondents plan to reduce their workforce over the next 12 months, with most of the layoffs affecting production workers and white collar support jobs.
Despite the end of skyrocketing costs, gross margins remained lower during the fourth quarter. Nearly half of respondents (48 percent) reported lower margins and only 17 percent experienced higher gross margins. This is a contrast to the same time last year, when 41 percent of manufacturers reported higher margins and 27 percent reported lower margins.
Cost-Effective Methods to Improve IT Functions
This quarter, the Barometer asked executives about their strategies to improve IT functions while balancing cost pressures and navigating the challenging economic environment. Responses show that the majority of industrial manufacturers (82 percent) cite technology as very (42 percent) or somewhat (40 percent) important to achieving strategic business objectives. However, more than one-third (36 percent) of respondents have not implemented performance improvement initiatives to help eliminate IT waste. Furthermore, only 63 percent reported that their organizations measure the benefits of outsourcing arrangements.
"Manufacturers have the opportunity to cut costs and meet business goals by managing their IT functions more effectively," said Misthal. "By aligning IT and business strategies and measuring the performance of these operations, organizations can reduce spending and achieve significant business benefits."
More than half (60 percent) of manufacturers outsource some components of IT work, with 50 percent outsourcing application development and/or maintenance and 36 percent outsourcing infrastructure, such as data centers and help desks. Overall, almost two-thirds (64 percent) of respondents believe that IT activities were effective in achieving their company's strategic business objectives.
About the Manufacturing Barometer
PricewaterhouseCoopers' Manufacturing Barometer is a quarterly survey based on interviews with 60 senior executives of large, multinational U.S. industrial manufacturing companies about their current business performance, the state of the economy and their expectations for growth over the next 12 months. This survey summarizes the results for Q4 2008 and was conducted from November 7, 2008 through January 16, 2009.
For access to the complete Manufacturing Barometer report, please visit www.pwc.com/manufacturing. For more information about other Barometer surveys, including recent economic trend data and topical issues, please visit www.barometersurveys.com.
About PricewaterhouseCoopers
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