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CFOs Less Optimistic after 1st-Quarter Bounce Fizzles
NEW YORK -- The nation's chief financial officers are less optimistic about the growth prospects of their organizations this year than they were at the start of each of the previous three years, a Deloitte CFO Signals survey finds. And, the survey found, CFOs’ year-over-year earnings projections hit an all-time low of 7.9% compared to 12.1% one year ago.
Despite their tentativeness, however, most CFOs continue to indicate a bias toward growth over reducing costs and are still focused on pursuing opportunities rather than limiting risk, according to the CFO Signals survey.
For the first quarter, 47% of CFOs expressed improved optimism while 20% expressed declining optimism -- for a net optimism of 27%. This is down from the 33 recorded in the previous quarter and stands at the lowest for any first quarter since the survey began in 2010. By comparison, net optimism in the first quarter of 2013 was 32%.
In line with the declining optimism, CFOs' expectations for other key metrics recorded their lowest levels for a first quarter since the survey began, despite the bounce historically enjoyed at the start of the year. CFOs' year-over-year expectations for sales growth sit at 4.6% -- a slight rebound from last quarter's survey low of 4.1% but below the 5.4% recorded for the same quarter in 2013. Capital spending growth expectations fell from 7.8% in the first quarter of 2013 to 6.5% this quarter and remained little changed from last quarter. Expectations for domestic hiring improved marginally over the first quarter of 2013, although the forecast of 1% growth is below last quarter's and remains below the survey's historical average of 1.6%.
Despite the low company-specific forecasts, CFOs did register increasing optimism regarding the North American and European economies. The percentage of CFOs who view the North American economy either as good and not getting worse or as likely to be better in a year rose to 72% this quarter from 60% last quarter.
"We normally see a clear boost in CFOs' sentiment and expectations in the first quarter of a calendar year, but the effects are far weaker this time," said Sanford Cockrell III, national managing partner, Deloitte LLP and leader of the CFO program. "There are clear concerns emerging on the stability of the economic recovery, price stagnation and flat employment affecting consumer demand. These are constraining expectations for 2014, but organizations still remain generally focused on growth over risk."
For 2014, 51% of CFOs say capital spending is slated for growth and innovation, and 58% say their preferred approach to growth is to focus on a few targeted opportunities. They also say that U.S. and China markets are central to the growth plans of their organizations; and, further, that the U.K., Germany and much of Latin America are important as well.
Other findings from the Deloitte survey of CFOs:
- Nearly 30% of CFOs who have the option to pay dividends say they will significantly increase dividends this year, and roughly the same proportion expect a major buyback. In addition, mean expectations for year-over-year dividend growth reached a 3½-year survey high of 5.7%.
- 23% of CFOs expect a fundamental change to their business strategy over the next year. Many CFOs also say their organizations are continuing to expand and refine their business with 21% expecting a substantial merger or acquisition, 14% expecting to discontinue the operation of a business unit and 16% expecting a substantial divestiture.
- Key concerns focus on regulation, faltering economies, sluggish job growth and slowing consumer demand. However, worries related to quantitative easing and its potential unwinding were less pronounced.
- 60% of CFOs now say they plan to pass health care costs on to employees as a result of the Affordable Care Act and 12% expect to pass costs on to customers. And, 23% say they expect to reduce the scope of benefits offered to some employees and 16% expect to reduce the level or value of benefits provided.
Published by The Business Journal, Youngstown, Ohio.
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