Recently Deloitte released their “CFO Signals” “High-Level Summary” report for the 1st Quarter of 2019.
As seen in page 2 of the report, there were 158 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 nacfosurvey@deloitte.com.”
Here are some of the excerpts that I found notable:
from page 3:
Perceptions
How do you regard the status of the North American, European, and Chinese economies? Perceptions of North America declined, with 80% of CFOs rating current conditions as good (down from 88% last quarter), and 28% expecting better conditions in a year (even with last quarter). Perceptions of Europe declined to just 16% and 8%; China slid to 20% and 16%. Page 6.
What is your perception of the capital markets? Seventy percent of CFOs say debt financing is attractive (up from 62%). Equity financing attractiveness fell for both public (from 35% to 25%) and private (37% to 27%) company CFOs. Just 46% now say US equities are overvalued—a three-year low. Page 7.
Sentiment
Overall, what external/internal risks worry you the most? CFOs express even stronger concerns about trade policies/tariffs, economic risks/slowdowns, and US political turmoil. Talent is again the dominant internal concern. Page 8.
Compared to three months ago, how do you feel about the financial prospects for your company? The net optimism index rebounded from last quarter’s dismal +3 to +16 this quarter—better, but still the third-lowest reading in three years. Thirty-two percent of CFOs express rising optimism (26% last quarter), and 16% express declining optimism (23% last quarter). Page 9.
Expectations
What is your company’s business focus for the next year? CFOs indicate a bias toward revenue growth over cost reduction (51% vs. 25%); investing cash over returning it (46% vs. 19%); current offerings over new ones (40% vs. 36%); and current geographies over new ones (64% vs. 12%). Page 10.
How do you expect your key operating metrics to change over the next 12 months? YOY revenue growth expectations fell from 5.5% to 4.8%, earnings growth slid from 7.3% to 7.1%, capital spending rose from 5.0% to 5.9%, and hiring fell from 3.2% to 2.1% (all sit below their two-year averages). Dividend growth declined from 4.5% to 3.9%, the lowest level since 4Q17. Page 11.
Special topic: Downturn planning and Washington policy focus
Where does your company stand with respect to downturn planning? Nearly 85% of CFOs say they expect a US downturn by the end of 2020, and they overwhelmingly expect a slowdown rather than a recession. A minority say they have detailed defensive or opportunistic plans. Pages 12-13.
If you believe a downturn will occur, what is driving your belief? CFOs were most likely to cite US trade policy, business and credit cycles, and the impacts of slowing growth in China and Europe on the US economy. Page 12.
What defensive actions will your company take? The most common actions involve reducing spending and limiting or reducing headcount. Page 14.
In which policy areas would your company like to see Washington provide clarity/change first? CFOs overwhelmingly rate trade policy the most important policy area, with infrastructure investment a distant second. Page 15.
from page 9:
Sentiment
Optimism regarding own-companies’ prospects
Own-company optimism rebounded from last quarter’s 10-quarter low, but it remains at one of its lowest levels in three years. The proportion citing “no change” reached a new survey high— likely a negative sign given last quarter’s strong pessimism.
Last quarter’s net optimism declined sharply to just +3—the lowest reading since 1Q16. This quarter it rose to +16, but it still represents the third-lowest reading in three years. Thirty-two percent of CFOs expressed rising optimism (up from 26%), and 16% cited declining optimism (down from 23%).
Net optimism for the US improved from last quarter’s +9 to +19—still its second-lowest level in more than two years. Canada rebounded from last quarter’s dismal -36 to +25. Mexico fell again and is at its lowest point since 1Q17 at -60.
Manufacturing, Retail/Wholesale, and Healthcare/Pharma were comparatively pessimistic (all at zero). Financial Services and Services were much stronger, with both above +30.
Please see the full report for industry-specific charts. Note that industry sample sizes vary markedly and that the means are most volatile for the least-represented. Due to a very small sample size, T/M/E was not used as a comparison point this quarter.
from page 11:
Expectations
Growth in key metrics, year-over-year
Expectations for revenue, earnings, dividends, hiring, and wages all declined (only capital spending rose), and all metrics sit below their two-year averages.
Revenue growth declined from 5.5% to 4.8%, one of its lowest levels in two years. The US fell to a two-year low. Canada rose, but is below its two year average. Mexico declined and is below its two-year average. Technology and Energy/Resources lead; Manufacturing and Retail/Wholesale trail.
Earnings growth declined from 7.3% to 7.1%, a two-year low. The US fell to a two-year low. Canada improved, but sits at its second-lowest level in three years. Mexico remained near its two-year average. Retail/Wholesale and Healthcare/ Pharma are highest; Manufacturing is lowest.
Capital spending growth rose from 5.0% to 5.9%, but is still the second lowest level in two years. The US rose, but sits at its second-lowest level in two years. Mexico rose sharply but remains below its two-year average. Canada rose above its two-year average. Healthcare/Pharma and Retail/ Wholesale are highest; Manufacturing is lowest.
Domestic personnel growth fell from 3.2% to 2.1%, the second-lowest level in two years. The US fell to its lowest level in more than a year. Canada declined to near its two-year average; Mexico fell to a five-year low. Services and Technology lead; Energy/Resources trails.
Dividend growth declined from 4.5% to 3.9%, the lowest level since 4Q17.
Please see the full report for industry-specific charts. Note that industry sample sizes vary markedly and that the means are most volatile for the least-represented. Due to a very small sample size, T/M/E was not used as a comparison point this quarter.
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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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I post various business and economic surveys because I believe they should be carefully monitored. However, as those familiar with this site 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 2805.37 as this post is written
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