“CFO Signals” Report – Excerpts

Recently Deloitte released their “CFO Signals” “High-Level Summary” report for the 3rd Quarter of 2018.

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 [email protected]

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, European, and Chinese economies? Perceptions of North America declined, with 89% of CFOs rating current conditions as good (down from the survey high of 94% last quarter), and 45% expecting better conditions in a year (down from 52% and lowest in two years). Perceptions of Europe declined significantly to 32% and 23%, from 47% and 36%, respectively, and China declined to 37% and 27% from 55% and 31%. Page 6.

What is your perception of the capital markets? Seventy-three percent of CFOs say debt financing is attractive (same as last quarter). Attractiveness of equity financing increased for public company CFOs (from 36% to 42%) and for private company CFOs (from 45% to 53%). Seventy-one percent of CFOs now say US equities are overvalued—up from last quarter’s 63%. Page 7.

Sentiment

Overall, what risks worry you the most? CFOs express strong external concerns about geopolitical and economic events (especially around trade policy and interest rates). Similar to last quarter, they cite pressures to execute on their growth plans, voicing growing internal concerns about driving initiatives, and finding talent. Page 8.

Compared to three months ago, how do you feel about the financial prospects for your company? The net optimism index fell from last quarter’s +39 to +36 this quarter. Forty-eight percent of CFOs express rising optimism (same as last quarter), and 12% express declining optimism. Page 9.

Expectations

What is your company’s business focus for the next year? CFOs indicate a declining bias toward revenue growth over cost reduction (59% vs. 20%) and a slightly lower bias toward investing cash over returning it (56% vs. 19%). The bias toward current offerings over new ones shifted back to current offerings this quarter (43% vs. 37%), and the bias toward current geographies over new ones increased somewhat (67% vs. 16%). 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 declined from 6.3% to 6.1%. Earnings growth declined from 10.3% to 8.1%. Capital investment slid from 10.4% to 9.4%. Domestic hiring fell from 3.2% to 2.7%. Dividend growth rose sharply from 4.8% to 7.4% (highest level in eight years). Page 11.

from page 9:

Sentiment

Optimism regarding own-companies’ prospects

After hitting a new survey high in 1Q18, net optimism fell for the second consecutive quarter—despite a sharp increase in optimism in Mexico; Services and Healthcare/Pharma improved, and Technology declined sharply.

Own-company optimism

Net optimism declined for the second straight quarter after hitting a new high in 1Q18. This quarter’s net optimism declined to +36 from +39, reaching its lowest level since 3Q17. CFOs expressing rising optimism remained unchanged from last quarter (48%), while CFOs citing pessimism increased to 12% (up from 9%).

Net optimism for the US declined from +42 last quarter to +35 this quarter, below the two-year average. Canada declined from +33 to +27, while Mexico rose sharply from zero to +67—the highest level in four years.

Sentiment was particularly strong in Services (+75, a new high) and T/M/E (+50).

Healthcare/Pharma rose sharply from -33 to +33, while Technology declined sharply from +52 to +17.

Please see the full report for charts specific to individual industries and countries.

from page 11:

Expectations

Growth in key metrics, year-over-year

Coming off multi-year highs, most key growth metrics declined, but remained strong. Mexico led growth expectations (similar to last quarter), and Canada lagged. Dividends rose sharply, driven largely by Retail/Wholesale and Energy/Resources.

Revenue growth declined from 6.3% to 6.1%, but remains at one of the highest levels in the last four years.

Earnings growth declined from 10.3% to 8.1%, the lowest level this year. The US declined, falling below its two-year average. Canada fell sharply to its lowest this year; Mexico also fell sharply, in line with its three-year average. Technology and Retail/Wholesale are highest; Energy/Resources and Services are lowest.

Capital investment declined from 10.4% to 9.4%, the second consecutive decline, but remains above the two-year average. The US fell from recent highs, but remains above its two-year average. Canada rose sharply and is above its twoyear average; Mexico rose sharply to its third highest level in the last six years. Energy/Resources and Retail/Wholesale are highest, Healthcare/Pharma and T/M/E are lowest.

Domestic personnel growth fell from 3.2% to 2.7%, but remains above its two-year average.

Dividend growth rose sharply from 4.8% to 7.4%, the highest level in eight years. The US rose to an eight-year high; Mexico rose to a four-year high; and Canada remained the same. Retail/Wholesale and Energy/Resources lead; Technology and T/M/E trail.

Please see the full report for charts specific to individual industries and countries.

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.