TORONTO, June 28, 2012 (GLOBE NEWSWIRE) -- Ongoing concerns about the global economy and the risk that the financial crisis in the eurozone could spread to North American banks have dented CFO optimism in the second quarter of 2012, particularly in the United States. While earnings growth expectations continue to be positive and outpace sales growth forecasts, a growing number of CFOs believe this cannot continue for much longer, with several companies raising prices to try to boost margins.
The quarterly Deloitte CFO Signals™ Survey, which tracks the thinking and actions of chief financial officers representing North American companies averaging more than $5 billion in annual revenue, shows only 39 per cent of CFOs are more optimistic this quarter about the prospects for their own companies (compared to 63 per cent last quarter), and 29 per cent report rising pessimism (up from 15 per cent last quarter). The situation is even bleaker in the U.S., where equal proportions of CFOs are more optimistic and more pessimistic. Moreover, CFOs' rising worries about Europe and domestic policy appear to be driving companies to hunker down and focus more on industry- and company-level issues.
"For several quarters now, companies have been working to find efficiencies in order to increase margins in the face of slower sales growth," said Trevor Nakka, co-leader of Deloitte Canada's CFO program. "Many CFOs now feel this dynamic has either run its course or will within the next year, so they're looking at other ways to increase earnings, including price increases."
Canadian CFOs are somewhat less optimistic than their U.S. counterparts in their estimates for sales gains (5.9 per cent in Canada versus 6.7 per cent in the U.S.) and considerably less optimistic when it comes to forecasts for earnings gains (4.6 per cent versus 12.3 per cent). Yet even as the overall level of optimism among Canadian CFOs declined this quarter (+42 percentage points versus +57 last quarter), they continue to be more much optimistic than they were in the fourth quarter of 2011, when net optimism stood at just +4. Canadian CFOs are also much less worried about unemployment than U.S. CFOs (only 16 per cent rank it as a top concern in Canada versus 59 per cent in the U.S.), with nearly two-thirds putting environmental policies in their top-three list.
"Even in the face of challenges to earnings growth, companies continue to have relatively high expectations when it comes to hiring and capital expenditures," said Eddie Leschiutta, regional leader of Deloitte Canada's CFO program. "Where companies do appear to be planning to cut back is on spending for research and development, and on marketing, particularly in the retail and wholesale sector."
Many companies have been able to generate better profitability now than before the recession, in large part due to a heavy emphasis on improving efficiencies in both direct and indirect costs. About 70 per cent of CFOs also report substantial cost-saving changes to their supply chains, more than half say they have reduced their focus on lower-margin businesses and/or lower-margin customers and about 40 per cent have used outsourcing or offshoring as another cost-reduction tactic. As the opportunities to find more cost savings diminish, however, an increasing number of CFOs now cite rising concerns about executing strategies and rapidly increasing pressures from poor company performance as one of their top job stresses.
The Deloitte CFO Signals™ survey also revealed the following results (estimates are adjusted averages to reduce the effect of outliers):
- When asked about their most worrisome risk, nearly half of all CFOs say economic conditions, with some three quarters of those specifically citing European conditions. About 20 per cent cite governmental and regulation-related issues.
- CFOs say their companies' top three challenges include revenue growth from existing markets (steady at 60 per cent), talent (up 7 points to 41 per cent) and prioritizing investments (steady at 32 per cent). More than half of the Canadian CFOs surveyed consider the availability of talent to be major challenge compared to just over a third of U.S. CFOs who share that concern.
- Companies' focus on revenue continues with 52 per cent of companies' strategic focus on revenue growth/preservation (34 per cent on revenues in existing markets and 18 per cent on new markets). The focus on indirect costs and direct costs held relatively steady at 12 per cent and 15 per cent, respectively. The focus on fixed asset efficiency held steady at about 10 per cent; the focus on working capital climbed to nine per cent.
- In an indication of a possible change in how companies use cash, CFOs expect dividend increases of 3.9 per cent, a significant rise over last quarter's survey low of 2.2 per cent.
- With their own money, CFOs appear cautious when it comes to equities and bonds. While CFOs do hold these instruments, they indicate a roughly equal preference for cash. About 40 per cent indicate a preference for stocks over bonds, with 26 per cent preferring bonds and the rest indifferent. About 60 per cent of the stock focus is on domestic stocks.
To download a copy of the survey, please visit: www.deloitte.com/us/pr/cfosignals2012Q2.
The Deloitte CFO Signals survey was conducted for the second quarter of 2012. More than 77 per cent of the 93 CFO respondents were from companies with more than $1 billion in annual revenues, and three fourths were from publicly traded companies. There were 19 Canadian CFOs who took part, representing just under 21 per cent of the total surveyed.
Each quarterly CFO Signals report analyzes CFOs' opinions in five areas: CFO career, finance organization, company, industry, and economy. For more information about Deloitte's CFO Signals, or to participate in the survey, please contact canadiancfo@deloitte.ca.
About Deloitte's CFO Program
Deloitte's CFO Program harnesses the breadth of Deloitte's capabilities to deliver forward-thinking perspectives and fresh insights to help CFOs manage the complexities of their role, drive more value in their organization, and adapt to the changing strategic shifts in the market. For more information about Deloitte's CFO Program, please contact canadiancfo@deloitte.ca or visit www.deloitte.com/us/cfocenter. ;
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