Recently Deloitte released their “CFO Signals” “High-Level Summary” report for the 3rd Quarter of 2014.
As seen in page 2 of the report, “One hundred and three CFOs responded during the two-week period ending August 22. Seventy-five percent of respondents are from public companies, and 83% 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 still strongest, with 44% of CFOs describing conditions as good (up from 40% last quarter), and 55% expecting better conditions in a year (down from 60% last quarter). Twenty-seven percent regard China’s economy as good (up from 24%), and 29% expect improvement (up from 21%). Just 5% describe Europe as good, and only 23% see it improving over the next year. Page 8.
How do you perceive pricing and risk within the financial markets? Fortyseven percent of CFOs say external financial and economic risks are higher than normal, and 63% believe U.S. markets are overvalued. An overwhelming 86% say debt is currently an attractive financing option, and about 30% of public company CFOs view equity financing favorably. Page 10.
Compared to the past 12 months, how do you expect your key operating metrics to change over the next 12 months? Sales growth expectations rose from 6.1%* last quarter to 6.8%*—highest since the third quarter of 2011. Earnings expectations improved from 8.9%* last quarter to 10.9%*—highest since the first quarter of 2013. Capital spending, however, declined sharply to 5.0%*—lowest level since the third quarter of 2013. U.S. CFOs’ capital spending growth expectation of 3.5%* is a new survey low. Pages 11-13.
How does your optimism regarding your company’s prospects compare to last quarter? Even on the heels of six straight quarters of positive net optimism, net optimism registered a very high +32. Forty-four percent of CFOs express rising optimism (about even with last quarter), and just 12% express rising pessimism— the lowest proportion since the survey began in 2Q10. Net optimism is lowest for Manufacturing and Services at about +10. Page 14.
Overall, what external or internal risk worries you the most? Worries about the global economy declined this quarter, but geopolitical concerns rose markedly, with growing attention to conflicts in the Ukraine, Middle East, and Latin America. Page 15.
from page 11:
Sales, earnings, and cash flow
What are CFOs’ expectations for their companies’ year-over-year sales, earnings, and operating cash flow?
Revenue growth expectations rose to their highest level in three years:
- Revenue growth expectations rose to 6.8%—highest since the third quarter of 2011. The median is again 5.0%, with 89% of CFOs expecting year-over-year gains.
- Country-specific expectations are 6.2% for the U.S. (up from 5.4%), 9.3% for Canada (up from 8.6%), and 8.8% for Mexico (up from 6.9%).
- Healthcare/Pharma and Technology CFOs have the highest expectations at 12.9% and 11.3%, respectively, while Retail/Wholesale and Financial Services CFOs are at 4.8%.
Earnings growth expectations increased, driven mainly by the U.S. and the Healthcare/Pharma and T/M/E sectors:
- Earnings expectations rose to 10.9%—the highest since the first quarter of 2013. The median remained at 8.0%, and 90% of CFOs expect yearover-year gains (a new survey high by a substantial margin). Variability of expectations is comparatively low.
- Country-specific expectations are 11.6% for the U.S. (8.1% last quarter), 10.2% for Canada (11.3% last quarter), and 7.2% for Mexico (7.4% last quarter).
- T/M/E and Healthcare/Pharma are both above 17%; Retail/Wholesale and Services are at 7.1% and 8.0%, respectively.
from page 13:
What are CFOs’ expectations for their companies’ year-over-year hiring?
Hiring expectations rose to their second-highest level in four years:
- Domestic hiring expectations rose to 2.3%, up from last quarter’s 1.6%.
This is the highest level we have seen since the second quarter of 2013. The median remained the same as last quarter at 1.0%, and 58% of CFOs expect year-over-year gains, consistent with last quarter’s level.
Country-specific expectations are 1.7% for the U.S (1.4% last quarter), 3.5% for Canada (2.4% last quarter), and 6.5% for Mexico (markedly up from 0.3% last quarter).
Among the various charts and graphics in the report are graphics depicting trends in “Own Company Optimism” and “Economic Optimism” found on page 6.
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 1946.49 as this post is written