Ernst & Young LLP Survey Uncovers Optimism and Positive Hiring Trends Among Growth Companies

NEW YORK, July 7 /PRNewswire/ -- Expectations about corporate growth turned positive this year, according to a new survey by Ernst & Young LLP that measures attitudes about key economic and performance indicators among US companies with $500 million to $3 billion in total revenues. Respondents were particularly optimistic about revenue, profitability, technology spending and hiring.  

According to the Ernst & Young Growth Company Leadership survey, fully 75% of senior executives questioned indicate they are optimistic about achieving their companies' growth expectations over the next two years. Among respondents, almost two-thirds (64%) expect their revenues to increase over the next 12 months by an average of 11.3%. Fifty-eight percent anticipate profit increases this year.  

Further, 73% are optimistic that the current economic recovery will continue to expand this year.

"Growth companies are regaining confidence that they can deliver on their potential and their promise to investors," said Maria Pinelli, Americas Director, Strategic Growth Markets, Ernst & Young LLP. "Their beliefs about hitting strong numbers are great news and a potential bellwether for the markets and the economy as a whole."

More than half (55%) of all respondents say domestic operations solely will drive revenue growth, with another 39% indicating a combination of domestic and international operations. Regionally, firms in the East Central and West regions are most likely to expect revenue increases this year. Nearly three in four (73%) respondents in the West expect profitability increases over the next twelve months. Growth companies in the West are the most optimistic that the current economic recovery will continue to expand this year (88% optimistic). The Southeast has the fewest believers (56% optimistic).

The industries that are most likely to expect growth in both revenue and profits, according to the survey, are technology (74% revenue and 72% profitability), financial services and retail/wholesale (both 69% revenue and 63% profitability). Financial services companies report the highest average revenue growth rate (13%).

Growth companies plan to hire over next 12 months

Forty percent of executives surveyed anticipate an increase in hiring new employees over the next 12 months. Only 22% anticipate a decrease in hiring.

"Job growth – not just maintenance – represents a turning point from the past 12 months," said Pinelli. "The largest of these growth companies – over $1 billion in revenue – are even more positive, with 46% projecting hiring increases. With so many companies looking to hire, we foresee a substantial contribution to the overall economy. Growth companies and entrepreneurs could represent significant engines to push jobs in the right direction."

More than half (52%) of senior executives indicate that their expected increase in new hiring this year is the result of "new growth," while almost as many (48%) indicate that it is more a "return to pre-economic downturn levels."

• Hiring is projected to focus on skilled professionals (68%), entry level (45%) and middle management (39%).

• Eighty percent of the hiring will be in the US.

• The barriers to hiring expressed by the respondents focus far less on economic uncertainty (only 8% said this is their biggest barrier), but more on finding qualified candidates (22%).

• Of those companies not planning to hire new employees this year, more say they needed to see increased revenue (42%) or an improving economy (27%) before they will consider hiring again. If the growth sector optimism proves to be true, perhaps even those not hiring now will do so in the near future.

Organic growth more likely than M&A

"While M&A activity can support the health and well-being of individual companies, new business development signals the potential for economic expansion," said Pinelli. "It's important to examine where revenue growth will come from, what the barriers may be and the likelihood of those barriers easing. Fortunately, we see a preference for organic growth. Also, the leading barrier, health care costs, seems to be factored into executives' forecasts."

• Organic expansion of current operations is cited as the leading driver (64%) of growth, followed by new products or services (56%) and innovation of existing products and services (49%). Expense reduction or mergers/acquisitions are seen as drivers of growth for far fewer senior executives surveyed.

• Respondents say health care costs are a more significant inhibitor of growth in 2010 than access to or cost of capital - 45% indicate that healthcare costs are a major impediment to their ability or willingness to grow domestically.

Expect a rise in spending in the growth sector

Six in ten respondents are comfortable spending/investing in the current economic environment in order to realize growth in their businesses. When it comes to capital spending, respondents expect five key investments to increase:

• Technology (51%)

• Employee training (34%)

• Risk management (32%)
  • The majority of financial service company  respondents (54%) indicate an increase in spending on risk management

• Green initiatives (32%)
  • More senior executives in the West (52%) see increased spending on green initiatives

• Research & Development (30%)

Methodology

The Ernst & Young Strategic Growth Markets Growth Company Leadership survey was conducted in April 2010 and represents responses from 349 senior-level executives at US public and private firms, across multiple industries, with $500 million to $3 billion in total revenue.  

About Ernst & Young's Strategic Growth Markets Practice

Ernst & Young LLP's Strategic Growth Markets (SGM) practice guides leading high-growth companies. Our multi-disciplinary team of elite professionals provides perspective and advice to help our clients accelerate market leadership. SGM delivers assurance, tax, transactions and advisory services to thousands of companies spanning all industries. Ernst & Young is the undisputed leader in taking companies public, advising key government agencies on the issues impacting high-growth companies and convening the experts who shape the business climate. For more information, please visit us at www.ey.com/us/strategicgrowthmarkets.

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SOURCE Ernst & Young LLP