“CFO Signals” Report – Excerpts

Recently Deloitte released their “CFO Signals” “High-Level Summary” report for the 4th Quarter of 2016.

As seen in page 2 of the report, there were 137  survey respondents.  As stated:  “Each quarter (since 2Q10), CFO Signals has tracked the thinking and actions of CFOs representing many of North America’s largest and most influential companies. All respondents are CFOs from the US, Canada, and Mexico, and the vast majority are from companies with more than $1 billion in annual revenue. For a summary of this quarter’s response demographics, please see the sidebars and charts on this page. For other information about participation and methodology, please contact nacfosurvey@deloitte.com.”

Here are some of the excerpts that I found notable:

from page 3:

Perceptions

How do you regard the current/future status of the North American, Chinese, and European economies? Perceptions of North America have improved, with 43% of CFOs rating its economic health as good and 58% expecting improvement next year. Perceptions of Europe remain pessimistic at just 8% and 13%, while China rebounded slightly to 24% and 17%. Page 6.

What is your perception of the capital markets? Seventy-nine percent of CFOs say debt financing is attractive (down from 89% last quarter), while attractiveness of equity financing held steady for public company CFOs (at about 40%) and rose for private company CFOs (from 24% to 29%). Seventy percent of CFOs say US equities are overvalued—just under the survey high. Page 7.

Sentiment

Overall, what risks worry you the most? CFOs again mention global economic growth and government regulation. New for this quarter is uncertainly regarding the new US administration’s future actions, with CFOs voicing concerns about the possibility of protectionism hurting global trade, and about tax reform possibly slowing near-term business spending. Page 8.

Compared to three months ago, how do you feel now about the financial prospects for your company? This quarter’s net optimism rose from last quarter’s +19.7 to +23.4 (slightly above the two-year average). Forty-three percent of CFOs express rising optimism (up from 35%), and the proportion citing declining optimism rose from 16% to 20%. Page 9.

Expectations

What is your company’s business focus for the next year? CFOs indicate a bias toward revenue growth over cost reduction (45% vs. 31%), and investing cash over returning it (56% vs. 17%). CFOs again indicate a bias toward existing offerings over new ones (41% vs. 32%), current geographies over new ones (57% vs. 22%), and organic growth over inorganic (58% vs. 18%). Page 10.

Compared to the past 12 months, how do you expect your key operating metrics to change over the next 12 months? Revenue growth expectations fell from 4.2% to 3.7% and are near their survey lows. Earnings growth rose to 6.4%, above last quarter’s 6.1% but again near 1Q16’s survey-low 6.0%. Capital spending growth fell to 3.6% (well off the two-year average). Domestic hiring growth fell to 1.3% from 2.3%. Page 11.

from page 9:

Sentiment

Net optimism bounced back strongly over the last two quarters; this quarter’s net optimism rose again due to positive sentiment within the US.

This quarter’s net optimism remains strong at +23.4. Forty-three percent of CFOs expressed rising optimism (up from 35% last quarter), and 20% cited declining optimism (up from 16%).

Net optimism for the US rose sharply from last quarter’s +16 to +34 this quarter. Canada fell from +50 to +7, and optimism in Mexico fell sharply from +50 to -64.

Healthcare/Pharma, Telecom/Media/ Entertainment, and Energy/Resources are the most optimistic; Retail/Wholesale and Financial Services are the least.

from page 11:

Expectations

Key growth metrics remain near their survey lows. CFOs from the US and from the Financial Services and Retail/Wholesale industries weighed on the averages.

Revenue growth expectations of 3.7% are down from last quarter and are again among the lowest in the survey’s history. US expectations are the second-lowest in survey history (back to 2Q10), and Financial Services sits at its new survey low.

Earnings growth expectations of 6.4% are up slightly from last quarter, but still near their survey low. Healthcare/Pharma and Energy/Resources are the highest; Financial Services is lowest.

Capital investment growth expectations of 3.6% are down sharply from last quarter and are the second-lowest in survey history. The US came in at its second-lowest level. Retail/Wholesale expects negative growth, with about half of CFOs expecting a decline.

Domestic hiring growth fell from last quarter’s very strong showing of 2.3% to 1.3% and is slightly below its two-year average. Technology and Healthcare/Pharma are lowest.

Among the various charts and graphics in the report are graphics depicting trends in “Own Company Optimism” on page 9 and “Economic Optimism” found on page 6.

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RevSD, LLC offers the above commentary for informational purposes only, and does not necessarily agree with the views expressed by these outside parties.

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RevSD, LLC (revsd.com) is a management consulting firm and strategic advisory that focuses on the analysis of current and future weak(ening) economic conditions, and offers businesses and other entities advice, strategies, and actionable methods on how to optimally adapt to such challenging, complex conditions.