Deloitte 'CFO Signals™' Survey: CFOs in 2016 - Focus on Growth and Efficiency, Established Markets and M&A in North America

CFOs cite uncertainty around upcoming U.S. presidential election and new regulations; Overall sentiment at lowest level in three years

Jan 14, 2016, 12:08 ET from Deloitte

NEW YORK, Jan. 14, 2016 /PRNewswire/ -- Surveyed chief financial officers (CFOs) have revealed their thinking and actions for 2016, and most are focused on growing in current markets and maximizing company efficiency, according to Deloitte's fourth quarter (Q4) "CFO Signals" survey, which tracks the thinking and actions of more than 100 CFOs from large North American companies. More than 90 percent of responding CFOs say a top three priority is increasing revenue in current markets, and almost 75 percent say a top priority is to reduce costs. Additionally, 63 percent of CFOs expect to seek M&A deals in 2016, largely focused in existing markets, for multiple reasons including scale efficiencies and acquiring customers in both current and new markets.

The upcoming presidential election year in the U.S. and recent interest rate appear to be impacting CFOs' thinking. Forty-nine percent of U.S. CFOs say the outcome of the upcoming elections will likely substantially impact future performance of their companies, while just under 30 percent say it will not. Overall, that difference is most pronounced in retail/wholesale, financial services and services, with twice as many CFOs in those industries saying the election outcome will likely affect their company's performance versus those who say it will not. The threat of new and burdensome regulations rose to the number one external risk for CFOs, while retaining key employees was the top internal risk.

"For several quarters now, our surveys have indicated CFOs' cautious optimism, with factors like the global economy and regulation weighing on decision-making," said Sanford Cockrell III, national managing partner of the U.S. CFO Program, Deloitte LLP. "CFOs' conservative expectations for 2016 growth and investment seem to suggest declining confidence, especially when combined with own-company sentiment that is at its lowest level in three years."

More than 80 percent of CFOs this quarter say a top three cash use is investing for growth. In most industries, investment will be focused on North America; about 43 percent say their proportion of investments in North America will be higher next year compared with 22 percent for China and 17 percent for Europe. Overall, 94 percent of all surveyed CFOs say the U.S. will be important to their five-year growth prospects.

This quarter's CFO Signals recorded the 12th straight quarter of positive net optimism at +10.7. However, net optimism is at a three-year low, as is the percentage of CFOs (34 percent) expressing rising optimism (i.e., they are more optimistic about their companies' prospects over the next year than in the previous quarter). Meanwhile, the proportion citing declining optimism rose to 23 percent this quarter from 19 percent last quarter. On a positive note, however, three of the survey's four key operating metrics – year-over-year growth in revenue, earnings, and capital spending – rose from last quarter's results to 5.9 percent*, 8.3 percent* and 4.9 percent*, respectively, and are now significantly above their lows from the second quarter of 2015. Domestic hiring continues to struggle, however, falling slightly to 1.2 percent from last quarter's 1.4 percent.

North America is still considered, by a wide margin, to be the strongest macroeconomy, with 55 percent of CFOs describing North American conditions as good, compared with 14 percent citing China's economy as good and 8 percent citing Europe's as good. North America is also the source of most of the optimism about macroeconomic performance over the next year, with 47 percent of CFOs expecting an improved economy one year from now versus 16 percent expecting improvement in China and 15 percent expecting better conditions in Europe.

This quarter, CFOs were also asked about their personal investments. In terms of asset allocation, many CFOs have shifted preferences toward stocks and established markets compared with 2Q 2012, when they were last asked about their personal investments. This quarter, only 16 percent express a bias toward cash over stocks and bonds (less than half the level from 2012), 10 percent prefer bonds to stocks (25 percent in 2012) and just 6 percent express a bias toward foreign stocks (18 percent in 2012). However, both domestic stocks and real estate have held their own, with 65 percent of CFOs preferring domestic stocks (versus 60 percent in 2012) and about 25 percent of CFOs preferring real estate versus stocks, bonds and commodities (about even with 2012). More than 70 percent of CFOs report an ownership stake in their company, with their average exposure equaling about 30 percent of their net worth.

"It will be interesting to see how the run up to the 2016 U.S. presidential election will affect CFOs' sentiment and plans over the course of the year," said Greg Dickinson, director, Deloitte LLP, who leads the North American CFO Signals survey. "The last time we witnessed negative net optimism was during the 2012 election cycle, when CFOs voiced strong and escalating concerns about fiscal policy, monetary policy and regulatory changes."

Additional findings from the Deloitte Q4 CFO Signals survey include:

  • Retirement plans: The average time to retirement for CFOs surveyed is about nine years, with 30 percent turning over in the next five years.
  • Improving profitability: More than 80 percent of CFOs expect to execute substantial productivity/efficiency improvement efforts. Forty-seven percent of CFOs expect efforts to lower and/or control labor costs; 45 percent expect efforts to lower and/or control non-labor costs; and 46 percent expect to focus more on higher-margin businesses.
  • North American economic independence: Most CFOs do not believe that improvement in the North American economy in 2016 will be dependent upon improvement of the economies in China and/or Europe. Just 27 percent of CFOs say improvement in North America will depend upon improvement in China, and 18 percent say the same about Europe. Fifty-seven percent of CFOs expect the dollar to appreciate over the renminbi; 60 percent expect it to appreciate over the euro in the next year.

To download a copy of the survey for detailed findings by industry, country and topic; longitudinal trends; and demographic and survey information, please visit: http://www.deloitte.com/us/cfosignals2015Q4.

About The Deloitte "CFO Signals™" Survey
The Deloitte CFO Signals survey for the fourth quarter of 2015 was conducted during the two-week period ending Nov. 20. Seventy-six percent of respondents were from public companies, and 82 percent were from companies with more than $1billion in annual revenue.

Each quarter, CFO Signals tracks the thinking and actions of CFOs representing many of North America's largest and most influential organizations. This report summarizes CFOs' opinions in four areas: business environment, company priorities and expectations, finance priorities and CFOs' personal priorities.

For more information about Deloitte's CFO Signals, or to inquire about participating in the survey, please contact NACFOSurvey@deloitte.com.

About Deloitte's CFO Program
The CFO Program brings together a multidisciplinary team of Deloitte leaders and subject matter specialists to help CFOs stay ahead in the face of growing challenges and demands. The program harnesses our organization's broad capabilities to deliver forward thinking and fresh insights for every stage of a CFO's career—helping CFOs manage the complexities of their roles, tackle their organization's most compelling challenges, and adapt to strategic shifts in the market. For more information about Deloitte's CFO Program, please contact uscfoprogram@deloitte.com or visit www.deloitte.com/us/thecfoprogram.

*All numbers with an asterisk are averages that have been adjusted to eliminate the effects of stark outliers.


As used in this document, "Deloitte" means Deloitte LLP and its subsidiaries. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.

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