Deloitte “CFO Signals” Report 2Q 2013 – Notable Aspects

Recently Deloitte released their “CFO Signals” “High-Level Summary” report for the 2nd Quarter of 2013.

As seen in page 2 of the report, “One hundred and five CFOs responded this quarter. Seventy percent of the CFOs are from public companies, and 80% are from companies with more than $1B in annual revenue.”

Here are some of the excerpts that I found notable:

from page 3 :

How do CFOs regard the current and future health of some of the world’s major economies?

CFOs are feeling reasonably good about North America and China, but expectations for Europe are dour. More CFOs rate North America’s economic health as good than as bad, and nearly two-thirds are optimistic about the region’s trajectory. By comparison, 53% are optimistic about China, and just 14% are optimistic about Europe.


How do companies expect performance, spending, and hiring to change over the next 12 months?

Growth and profitability expectations remain modest this quarter, with sales growth expectations only slightly higher at 5.7% (still below the 7% long-term average) and earnings growth lower at 10.3%* (well below the 12.3% historical average). Capital spending growth expectations declined to 7.5%*, but dividend growth rose to 4.5%* (well above their longer-term average). Domestic hiring growth expectations improved to a still-muted 2.4% (the U.S. sits at just 1.3%, and 21% of all CFOs still expect cuts).

How does CFOs’ optimism regarding their companies’ prospects compare to last quarter?

CFO optimism continued to rebound this quarter, rising from a strong +32 last quarter to an even stronger +46 this quarter. Nearly 60% of CFOs express rising optimism, and just 13% express rising pessimism (the lowest proportion in the three-year history of this survey).

from page 4:

On the face of things, this quarter seems a lot like the last. Companies are performing relatively well, but they’re still doing it mostly through tight cost management and intense business focus – and not by riding waves of growing customer demand.


But despite all these similarities, this quarter feels notably different. CFOs’ responses this quarter seem to indicate an air of optimism that has been mostly absent for well over a year. Perhaps the best news is that CFOs mostly see North America’s economies as healthy, and they are particularly bullish about where they will be next year. And at a company level, more are positive about their own prospects than has been the case since the first quarter of 2012.

from page 5:

Modest growth expectations are continuing to take a toll on investment. At 7.5%, capital spending growth expectations are below their long-term survey average, and domestic hiring growth expectations are still muted at 2.4% (the U.S. sits at just 1.3%, and 21% of all CFOs expect cuts). Instead of committing to these longer-term investments, CFOs say their companies are more likely to give cash back to shareholders; dividend growth expectations reached their highest level in nearly three years, and share buybacks are expected to be one of the top uses of cash for 2013.


Growth is important, but profitability is still king when it comes to driving CFO compensation. More than 95% of CFOs report at least moderate influence and 75% report strong influence. But it is interesting to note that economic performance (through metrics like ROIC that incorporate both income statement and balance sheet measures) are the next strongest driver of CFO pay, with more than 70% of CFOs reporting moderate or strong influence. Also interesting is that measures more limited to the functional scope of finance (factors like liquidity, cost of capital, treasury returns, and tax efficiency) are considerably less influential – but there are important industry differences.


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.


The Special Note summarizes my overall thoughts about our economic situation

SPX at 1614.88 as this post is written