NEW YORK, Oct. 12, 2011 /PRNewswire/ -- The persistent drumbeat of negative economic news is taking a toll on CFO optimism. In fact, for the first time in the history of the Deloitte CFO Signals survey, finance chiefs who are more pessimistic about their own company's prospects outnumber optimists in the third quarter of 2011. Moreover, CFOs are substantially cutting back growth and investment plans for the coming year due to ongoing concerns about the global economy.
The quarterly Deloitte survey, which tracks the thinking and actions of chief financial officers representing many of North America's largest and most influential companies, shows that optimism fell precipitously this quarter with only 29 percent of CFOs reporting a more positive outlook, down from 40 percent in the second quarter (60 percent in Q1). Moreover, the percent of respondents who are less optimistic skyrocketed to 53 percent from 32 percent last quarter.
"CFO sentiment is driven by demand," said Sanford Cockrell III, national managing partner, CFO Program, Deloitte LLP. "The deepening impact of the European debt crises combined with stagnant employment, continued housing issues and volatile financial markets at home do not bode well for consumer demand anywhere. Little wonder some CFOs are stepping back – even retreating – from their previous growth projections."
Specifically, while those projections remain positive, CFOs are tempering their expectations for year-over-year revenue growth (6.8 percent this quarter versus 7.1 percent last quarter) and earnings growth (9.3 percent versus 14.0 percent). And, despite their companies' focus on revenue growth, CFOs are also cutting back their projections for year-over-year capital spending (7.9 percent this quarter compared to 10.7 percent last quarter) and domestic hiring (1.2 percent from 2 percent last quarter).
There seem to be few government fixes that can change this sentiment in the near term. For example, less than a quarter of CFOs say the U.S. Federal Reserve's pledge to keep interest rates low through 2013 will boost their capital investment or hiring. Still, CFOs overwhelmingly (92 percent) believe fiscal soundness of their governments is essential to business success. They also appear willing to personally contribute to that success with more than half (52 percent) echoing Warren Buffett's view that it would be acceptable for their personal income tax rate to rise as part of a comprehensive deficit reduction solution.
"On one hand, it's a bit surprising that about half of the CFOs surveyed are willing to go along with an increase to their personal income tax rate since they are known for being fiscal conservatives. Our research has already shown that they very much favor spending cuts over tax increases," explained Greg Dickinson who leads the Deloitte CFO Signals survey. "But on the other hand, we also know that CFOs are pragmatic problem solvers who are used to finding comprehensive solutions."
The Deloitte CFO Signals survey also reveals the following results (estimates are adjusted averages to reduce the effect of outliers):
- More than half of CFOs (52 percent) say recent economic turmoil will negatively impact (or has already negatively impacted) their financial projections.
- In addition to concerns about external business volatility, CFOs have significant internal concerns about their ability to redefine and execute strategies. CFOs are at least somewhat concerned that their strategies are not well enough defined (68 percent) or able to adapt to changing business environments (60 percent). A high proportion is also concerned that their organizations will struggle to execute on their chosen strategies (37 percent).
- To fuel their growth plans, CFOs slightly favor domestic growth with 56 percent citing a dominant focus there. But when they do go overseas, they tend to prefer emerging markets over mature markets and organic growth over M&A. Results varied by industry, however.
- When it comes to which risks are most closely monitored, CFOs report a substantial focus on capital access/costs (54 percent), competitive conditions (47 percent), regulatory compliance (46 percent), M&A activity (43 percent), and customer demand changes (39 percent).
- Despite recent economic turmoil, CFOs are fairly confident in their treasury operations. However, sovereign debt concerns may cause many to hold more high quality assets (51 percent) or change their financial counterparty credit strategies (47 percent).
To download a copy of the survey, please visit www.deloitte.com/us/pr/cfosignals2011q3.
The Deloitte CFO Signals survey was conducted for the third quarter of 2011. The findings were collected from 91 CFOs who responded to the survey during the two weeks ending August 26, 2011. Seventy-five percent of the respondents were from companies with more than $1 billion in annual revenues; and 75 percent were from publicly-traded companies.
Each quarterly CFO Signals report analyzes CFOs' opinions in five areas: CFO career, finance organization, company, industry, and economy. For more information about Deloitte's CFO Signals, or to participate in the survey, please contact NACFOSurvey@deloitte.com.
Deloitte's CFO Program harnesses the breadth of Deloitte's capabilities to deliver forward-thinking perspectives and fresh insights to help CFOs manage the complexities of their role, drive more value in their organization, and adapt to the changing strategic shifts in the market. For more information about Deloitte's CFO Program, please contact firstname.lastname@example.org or visit www.deloitte.com/us/cfocenter.
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.