Recently Deloitte released their “CFO Signals” “High-Level Summary” report for the 2nd Quarter of 2015.
As seen in page 2 of the report, "One hundred one CFOs responded during the two-week period ending May 22. Seventy-one percent of respondents are from public companies, and 84% 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? Fifty-nine percent of CFOs describe North American conditions as good (even with last quarter), and 54% expect better conditions in a year (64% last quarter). Twenty-three percent regard China’s economy as good (up from 18% last quarter), and 16% expect improvement (up from 13%). Five percent describe Europe as good, and 30% see it improving in a year (up from 10%). Page 8.
What is your perception of the capital markets? Sixty-five percent of CFOs say US markets are overvalued (up from 46% last quarter and a new survey high). Ninety-one percent say debt is currently an attractive financing option, and 42% of public company CFOs view equity financing favorably (up markedly from 33% last quarter). 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 fell to 3.1% from 5.4% last quarter and now sit at the lowest level in the five-year history of this survey. Earnings expectations fell sharply to 6.5% from 10.6% last quarter and also reached their survey low. Capital spending expectations rose slightly to 5.4% from last quarter’s 5.2%. Domestic hiring expectations fell to 1.2% (down from last quarter’s 2.4%) and are now at their lowest level since 1Q14. Pages 11-13.
Overall, what external and internal risks worry you the most? Economic worries escalated, with growing concerns around the possibility of a pullback in the US. Concerns about the strength of the US dollar receded, but concerns about oil prices, interest rates, and equity market corrections rose. Internal concerns about execution and availability of talent are again substantial. Page 15.
*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?
Revenue1
Expectations declined sharply—due to lower expectations across all industries and particular weakness in Energy/Resources:
- Revenue growth expectations fell to 3.1% from 5.4% last quarter and now sit at the lowest level in the five-year history of the survey. The median remains at 5.0%, but just 78% of CFOs expect year-over-year gains (also a survey low). Variability of responses is lower than last quarter, but still high relative to the survey average.
- Country-specific expectations are 3.0% for the US (down from 6.1%), -2.1% for Canada (down from +2.1%), and 7.9% for Mexico (up from 3.1%). Canada’s decline is mostly the result of lower expectations from Energy/Resources (especially oil and gas companies).
- Expectations for all industries declined this quarter. Financial Services and Healthcare/Pharma* CFOs have the highest expectations at 6.4% and 7.6%, respectively. Energy/Resources is the driver of lower aggregate expectations, falling sharply to -2.5% this quarter from -0.2% last quarter.
Earnings1
Expectations declined sharply—with declines in all industries except Financial Services and another large decrease in Energy/Resources:
- Earnings expectations fell sharply to 6.5% from 10.6% last quarter and reached their survey low. The median fell sharply to 5% (another survey low), and 79% of CFOs expect year-over-year gains (matching the lowest level in two years). Variability of responses is not as high as it was last quarter, but it is still among the highest levels in the last three years.
- Country-specific expectations are 6.9% for the US (down from 12.3% last quarter), -3.6% for Canada (down from 3.1% last quarter), and 13.2% for Mexico (up from 2.8% last quarter).
- All industries are down this quarter except for Financial Services. All are above the 6.5% cross-industry average except for Energy/Resources, which comes in at -5.8% (down from -1.1% last quarter). Healthcare/Pharma* and T/M/E* are the highest at about 12.5%.
* Asterisks indicate industries with sample sizes of less than five for this quarter.
from page 13:
Employment
What are CFOs’ expectations for their companies’ year-over-year hiring?
Domestic hiring1
Hiring expectations fell sharply from recent highs:
- Domestic hiring expectations fell to 1.2% (down from last quarter’s 2.4%) and are now at their lowest level since 1Q14. The median fell to 0.0%, and 49% of CFOs expect year-over-year gains, well under last quarter's 58% and the lowest level since 1Q14. Variability of responses rose significantly this quarter, but is about same as the long-term survey average.
- Country-specific expectations are 1.0% for the US (down from 2.3% last quarter), -1.0% for Canada (down from 1.4 % last quarter), and 4.2% for Mexico (down from 4.7% last quarter).
- Energy/Resources and T/M/E* have the lowest average expectations at 0.9% and -1.3%, respectively, while Financial Services and Technology* have the highest at 3.9% and 2.5%, respectively.
Offshore hiring1
Offshore hiring expectations declined:
- Offshore hiring declined to 2.0%, below last quarter’s 3.1% but still in line with levels over the past few years. The median remained at 0.0%, and just 39% of CFOs expect year-over-year gains—the lowest level since 1Q14.
- Country-specific expectations are 2.2% for the US (down from 3.2% last quarter), 1.8% for Canada (down from 2.5% last quarter), and 1.1% for Mexico (down from 3.0% last quarter).
- Technology* and T/M/E* have the highest expectations at 4.5% and 8.1%, respectively. Manufacturing and Energy/Resources have the lowest expectations, with both below 1.0%.
* Asterisks indicate industries with sample sizes of less than five for this quarter.
¹All 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 2096.37 as this post is written
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