Deloitte “CFO Signals” Report Q4 2014 – Notable Aspects

Recently Deloitte released their “CFO Signals” “High-Level Summary” report for the 4th Quarter of 2014.

As seen in page 2 of the report, "One hundred and two CFOs responded during the two-week period ending November 21. Seventy-two percent of respondents are from public companies, and 82% are from companies with more than $1B in annual revenue. For more information, please see the “About the survey” section of this report."

Here are some of the excerpts that I found notable:

from page 3:

How do you regard the current and future status of the North American, Chinese, and European economies? Views of North America are again strongest, with a very high 63% of CFOs describing conditions as good (up from 44% last quarter), and the same proportion expecting better conditions in a year (up from 55% last quarter). Thirtyfour percent regard China’s economy as good (up from 27% last quarter), and 25% expect improvement (down from 29% last quarter). Just 2% describe Europe as good, and only 13% see it improving over the next year. Page 8.

What is your perception of the capital markets? Forty-nine percent of CFOs say external financial and economic risks are higher than normal, and 61% believe US markets are overvalued (both numbers are about the same as last quarter). An overwhelming 88% say debt is currently an attractive financing option, and 48% of public company CFOs view equity financing favorably (up sharply from 30%). Page 9.

Compared to the past 12 months, how do you expect your key operating metrics to change over the next 12 months? Revenue growth expectations, which reached their three-year high last quarter, receded from 6.8%* to 6.0%* but are still comparatively strong. Earnings expectations, coming off their highest level in more than a year, declined from 10.9%* to a still-strong 9.7%*. Capital spending rose from 5.0%* to 5.5%*—mostly because US CFOs’ estimates bounced back from last quarter’s surveylow 3.5%* to 5.8%* this quarter. Pages 11-13.

Compared to three months ago, how do you feel now about the financial prospects for your company? Continuing a string of seven straight quarters of positive net optimism, net optimism rose to a very strong +33.3. Forty-nine percent of CFOs express rising optimism (44% last quarter), and just 16% express declining optimism. Net optimism is lowest for Manufacturing, Energy/Resources, and Services. Page 14.

Overall, what external or internal risk worries you the most? CFOs’ most worrisome risks largely focus on the degree to which troubles in Europe, Asia, and Latin America will ultimately impact performance at home. And many relay worries that policymakers will struggle in trying to spur growth. Page 15. 

*These averages are means that have been adjusted to eliminate the effects of stark outliers.

from page 11:

Revenue and earnings

What are CFOs’ expectations for their companies’ year-over-year revenue and earnings?

Revenue*

Revenue growth expectations declined, but are still among the highest in the last three years:

• Revenue growth expectations fell to 6.0% from 6.8% last quarter. The median is again 5.0%, with 90% of CFOs expecting year-over-year gains. Variability of responses is near the survey low for this metric.
• Country-specific expectations are 5.9% for the US (down from 6.2%), 5.0% for Canada (down from 9.3%), and 9.8% for Mexico (up from 8.8%).
• Healthcare/Pharma and T/M/E have the highest expectations at 12.1% and 8.4%, respectively, while Energy/Resources and Retail/Wholesale CFOs have lowest expectations at 4.0 and 4.6%, respectively.

Earnings*

Earnings growth expectations declined, but are still relatively strong— bolstered mostly by the Healthcare/Pharma and T/M/E sectors:

• Earnings expectations fell to 9.7% from 10.9% last quarter. The median remained at 8.0%, and 86% of CFOs expect year-over-year gains. Variability of responses is again comparatively low.
• Country-specific expectations are 10.8% for the US (11.6% last quarter), 4.5% for Canada (10.2% last quarter), and 10.5% for Mexico (7.2% last quarter).

*All averages have been adjusted to eliminate the effects of stark outliers.

from page 13:

Employment

What are CFOs’ expectations for their companies’ year-over-year hiring?

Domestic hiring*

Hiring expectations declined, but are again near their four-year high:

• Domestic hiring expectations fell to 2.1%, down from last quarter’s 2.3%. The median remained at 1.0%, and 60% of CFOs expect year-over-year gains, consistent with last quarter's level.
• Country-specific expectations are 1.7% for the US (same as last quarter), 2.2% for Canada (3.5% last quarter), and 6.1% for Mexico (6.5% last quarter).

Offshore hiring*

Offshore hiring expectations declined, but are still relatively high:  •  Offshore hiring decreased to 2.0% from last quarter’s 2.6%. The median remained at 0.0%.

• Country-specific expectations are 2.1% for the US, 1.3% for Canada, and

2.0% for Mexico.

• T/M/E CFOs have the highest expectations at 3.8%. Retail/Wholesale, and Services reported less than 1.0%. Forty-four percent of CFOs expect year-over-year gains.

*All averages have been adjusted to eliminate the effects of stark outliers.

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Among the various charts and graphics in the report are graphics depicting trends in “Own Company Optimism” and “Economic Optimism” found on page 7.

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I post various business and economic surveys because I believe they should be carefully monitored.  However, as those familiar with this blog are aware, I do not necessarily agree with many of the consensus estimates and much of the commentary in these surveys.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2058.97 as this post is written