Recently Deloitte released their “CFO Signals” “High-Level Summary” report for the 4th Quarter of 2015.
As seen in page 2 of the report, “One hundred twelve CFOs responded during the two-week period ending November 20. Seventy-six 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? Fifty-five percent of CFOs describe North American conditions as good (59% last quarter), and 47% expect better conditions in a year (55% last quarter). Fourteen percent regard China’s economy as good (up from 4% last quarter), and 16% expect improvement (up from 10%). Eight percent describe Europe as good (up from 5%), but only 15% see it improving in a year (down from 30%). Page 8.
What is your perception of the capital markets? Fifty-six percent of CFOs say US markets are overvalued (down from 60% last quarter). Eighty percent again say debt is currently an attractive financing option, and 26% of public company CFOs view equity financing favorably (down from 36% 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 rose from 4.4% to 5.9%, well above their 2Q15 lows and about even with a year ago. Earnings growth expectations rebounded from last quarter’s survey-low 6.5%* to 8.3%*—back near the two-year average. Capital spending expectations rebounded from last quarter’s 4.3%* to 4.9%*. Domestic hiring growth expectations are again sluggish, falling slightly to 1.2% from last quarter’s 1.4%. Pages 11-13.
What are your expectations for the 2016 macroeconomic environment? For each individual economy, the proportion of CFOs expecting 2016 to be better than 2015 was matched by the proportion who did not (US CFOs were more pessimistic about their own economy). About half of US CFOs say the presidential election will impact performance. *Averages are means that have been adjusted to eliminate the effects of stark outliers. Only 27% of surveyed CFOs said improvement in North America’s economy is dependent on improvement in China’s. More than 90% say the federal funds rate will rise, but 60% expect rates below 2% through 2017. About 60% expect the US dollar to rise against the renminbi and the euro. Page 16.
What will you do in 2016 to improve your company’s profitability? The most common tactic combinations include the execution of productivity improvement efforts— paired with a focus on higher-margin businesses or paired with efforts to reduce labor and/or non-labor input costs. One quarter expect to raise prices. Page 22.
*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 continuing to rebound from 2Q15’s record lows, driven by improvement across countries and in most industries (Services is the exception):
• Revenue growth expectations rose to 5.9%, significantly up from last quarter’s 4.4% and a continuation of a recovery from 2Q15’s survey low of 3.1%. The median returned to a survey-normal 5.0%, up from 4.5% last quarter. Some 82% of CFOs expect year-over-year gains, up from last quarter’s 79%. The distribution² of responses is very broad (the broadest in more than four years), and this phenomenon has sometimes been followed by a significant shift the following quarter.
• Country-specific expectations are 6.3% for the US (up from 5.1% last quarter), 2.8% for Canada (up from -0.7%), and 7.4% for Mexico (up from 6.1%).
• Industry expectations vary considerably, with Retail/Wholesale, Financial Services, and T/M/E strongest (all above 8.5%). Energy/Resources rebounded from last quarter’s -3.5%, but is still comparatively low at 2.8%. Services is lowest at just 0.7%.
Earnings¹
Expectations still below the two-year average, but improvement seen across countries and in most industries (Services is again the exception):
• Earnings expectations rose sharply to 8.3%, well above the 6.5% levels from the past two quarters, but still below the levels from a year ago. The median dropped to 7.0% from last quarter’s 8.0%. The percentage of CFOs expecting year-over-year gains rose to 82% from last quarter’s 79% and is now at the highest level since 4Q14. The distribution² of responses this quarter is about average compared to recent quarters.
• Country-specific expectations are 9.2% for the US (up from 7.6% last quarter), 3.3% for Canada (up from -2.7%), and 6.5% for Mexico (down from 7.9%).
• All industries expect positive growth, with Retail/Wholesale and T/M/E the highest at 13.4% and 13.0%, respectively. Energy/Resources improved from -8.9% last quarter to 3.2%, but is still comparatively low. Services is lowest at 0.0%.
[1] 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 hiring¹
Expectations muted and well below those from a year ago:
• Domestic hiring expectations fell to 1.2%, down slightly from last quarter’s 1.4% and again one of the lowest levels in the last two years. The median declined to 0.0%, which is again below the survey average of 0.7%. The distribution2 of responses this quarter is below-average compared to recent quarters.
• Country-specific expectations are 1.3% for the US (above last quarter’s 1.2%, but still among the lowest levels in the past two years), 0.6% for Canada (up from -0.9% last quarter), and 0.5% for Mexico (down from 5.0% last quarter).
• Technology, Healthcare/Pharma, and Financial Services are the highest at 2.4%. Energy/Resources again indicated the lowest average expectation at -1.2% (up from last quarter’s -2.1%), with Manufacturing also low at 0.2% (up slightly from last quarter’s 0.0%).
Offshore hiring¹
Expectations flat and about equal to their long-term survey average:
• Offshore hiring growth rose to 2.8%, up slightly from last quarter’s 2.7%. The median remains at 0.0%, and 49% of CFOs expect year-over-year gains (up from last quarter’s 46%).
• Country-specific expectations are 3.0% for the US (down slightly from last quarter’s 3.1%), 2.4% for Canada (up from 2.0%), and 0.8% for Mexico (down from 1.7%).
• Technology indicates the highest expectations at 5.6%, with Energy/Resources again the lowest at 0.0%.
Domestic wage growth¹
Expectations up slightly, but indicative of strong wage pressures:
• Domestic wage growth rose to 2.7% from last quarter’s 2.5%. The median held at 3.0%, and 91% of CFOs expect year-over-year gains.
• Country-specific expectations are 2.7% for the US, 2.0% for Canada, and 3.4% for Mexico.
• All industry-specific expectations range between 1.9% and 3.2%, with Energy/Resources lowest and Services highest.
[1] All averages have been adjusted to eliminate the effects of stark outliers.
Please see full report for industry-specific findings.
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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 6.
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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 1964.45 as this post is written
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