Gloomy Expectations from CFOs Amid Economic Concerns, Internal Challenges

Michelle Remo, “Big 4″ observer
July 15, 2011 /

External and internal factors threatening their progress have become the major concerns of chief financial officers (CFOs) as they look to move from recovery to growth, Deloitte survey showed.

According to the results of the Deloitte CFO Signals survey for the second quarter of 2011, “CFOs are more apprehensive about the soundness of capital investments and the possibility of internal missteps as they work to further their organizations’ growth agendas.”

The Deloitte CFO Signals survey for the second quarter of 2011 was conducted from May 16 to May 27, 2011. A total of 78 CFOs participated in the study with 75 percent representing companies with more than $1 billion in annual revenues and 75 percent from publicly-traded companies.

The finding reflects their returning concerns over the economic recovery, Deloitte said.

The survey tracked the perspectives of CFOs from the key players in North America, which found that “own-company optimism” fell markedly this quarter as 40 percent of respondents say they have a more positive outlook, down from 62 percent last quarter.

In addition, from 16 percent in the last 12 months, the lowest level so far, that said they were less optimistic, the figure doubled to 32 percent.

CFOs cited concerns over the execution of corporate growth agendas, Deloitte noted.

“Whereas past pessimism was driven largely by deteriorating assessments of the macro-business environment, roughly half of the renewed doubt this quarter is driven by internal concerns. In addition, CFOs are having second thoughts about their capital investments.”

In fact, 49 percent of the respondents said they were more worried about the quality of their capital investments than they were three years ago and 40 percent were more concerned about the level of those investments.

“It’s fair to say that delivering growth is a lot harder than cost-cutting in this environment,” said Sanford Cockrell III, national managing partner, CFO Program, Deloitte LLP.

“In addition to the continued regulatory overhang and economic uncertainty, the very real possibility of internal missteps is making CFOs understandably nervous and leading them to invest cautiously and formulate contingency plans,” he added.

“Still, CFOs appear to be only raising a cautionary flag at this point,” Deloitte said.

CFOs continue to expect year-on-year revenue growth (7.1 percent this quarter versus 8.2 percent last quarter) and positive earnings growth (14 percent versus 12.6 percent last quarter) as well as increased capital spending (10.7 percent this quarter compared to 11.8 percent last quarter).

Approximately 64 percent of CFOs also expect increases in domestic hiring although it will not be substantial.
Year-on-year domestic hiring growth projections for the second quarter of 2011 sustained a 2 percent low, slightly higher than last quarter’s 1.8 percent.

“CFOs foresee moderate growth, but rising volatility in input prices, government policy and economic trends is making them wary of major investments,” explained Greg Dickinson, who leads the Deloitte CFO Signals survey.
“Boards and other stakeholders appear to agree that cash enhances strategic options and are not currently pressing for capital investment.”

The Deloitte CFO Signals survey also revealed that 52 percent of respondent CFOs said the strategic focus of their companies centers on revenue growth while keeping away from cost reduction.

Revenue growth from existing markets is the most prevalent company challenge was cited by 53 percent of CFOs as a top three concern.

But talent is a fast rising concern with 40 percent of companies ranking it among the top three, up from 31 percent last quarter.

More than 40 percent of CFOs said they prefer holding cash at this time. In fact, less than 10 percent of CFOs said they feel pressured to invest their high levels of balance-sheet cash; nearly 30 percent feel pressure to return cash to shareholders.

Moreover, CFOs remained concerned about the government’s impact on their growth plans as more than 25 percent view detrimental policy as their most worrisome risk.

Almost 95 percent of CFOs said they expect rising input/commodities prices, up from 84 percent last quarter.

Moreover, pricing trends are a top concern for 53 percent of companies, on par with industry regulation.

For the first time, “major change initiatives” tops the list of CFOs job stresses. Nearly 56 percent of all CFOs cite this stress, and half or more of CFOs in each of the eight sectors surveyed (other than Healthcare/Pharma) ranked it in their top three.

 

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