Deloitte CFO Signals™ Survey: CFOs' Economic Perceptions Hit Multi-Year Lows Amid Increasing Global Concerns

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Deloitte

Sep 19, 2019, 08:02 ET

NEW YORK, Sept. 19, 2019 /PRNewswire/ --

Key takeaways

CFOs' views on the trajectory of North America's and Europe's economies hit six-year lows.
CFOs express even stronger concerns about the impact of U.S. trade policy on global growth, rising concerns about Brexit and the broader European economy, and the 2020 U.S. elections.
For the first time in nearly seven years — since Q4 2012 — CFOs' own-company optimism turned negative.
About 45% of CFOs said they have experienced shareholder activism in the last three years, mostly via activists' direct communication with management.

Why it matters to CFOs?
Each quarter, CFO Signals tracks the thinking and actions of leading CFOs representing some of North America's largest and most influential companies. Since 2010, the report has provided key insights into the business environment, company priorities and expectations, finance priorities, and CFOs' personal priorities.

Perceptions of the North American and European economies hit six-year lows
CFOs' assessments of North America's economy peaked in Q2 2018, with 94% rating the economy as good, and their views have declined every quarter since then. In Q3 2019, their perceptions of the North American economy fell to a six-year low, with only 68% of respondents rating current conditions as good (down from 79% last quarter), and 15% expecting better conditions in a year (down from 24%). CFOs' perceptions of Europe's economy also declined, with 5% noting current conditions as good and only 2% expecting better conditions in a year. CFOs' views of China's current economic conditions decreased back to levels from Q1, with 20% indicating they are good (26% in Q2), and only 11% expecting better conditions in a year (10% in Q2).

Concerns over trade policy and Europe continue to mount
Among CFOs' top external concerns this quarter were tariffs and their possible effect on global growth. With emerging problems in the European economy and Brexit-related political changes in the U.K., they also voiced stronger concerns about growth in that region. Recently, attention has turned to the possibility of a U.S. and broader global economic downturn — especially as a possible consequence of trade wars and continuing political turmoil.

Own-company optimism hits a seven-year low
CFOs' own-company optimism turned negative for the first time in nearly seven years. In Q2 2019, optimism sat at +9, but this quarter it slid sharply to -5, the first negative reading since the fourth quarter of 2012. When asked about the financial prospects for their company, 26% of CFOs expressed rising optimism (down from 30%), while 31% cited declining optimism (up from 21%).

Several key metrics slide to multi-year lows
CFOs' expectations for revenue growth rose from 3.8% to 4.3%; their expectations for earnings growth slid from 6.1% to 5.6% (a new survey low); their expectations for capital spending fell sharply from 7.7% to 3.6%; and their expectations for hiring dipped from 1.9% to 1.6% (both sit at three-year lows).

Key quotes
"CFOs' assessments of the North American economy's trajectory hit a new survey low this quarter, with just 15% of CFOs expecting better conditions in a year. On top of this, CFOs' optimism regarding their own companies' prospects fell to the lowest level in nearly seven years."
- Sanford Cockrell III, national managing partner of the U.S. Chief Financial Officer Program, Deloitte LLP

"It is clear addressing activism appears to be a significant focus for CFOs. Nearly 80% of respondents cited at least yearly presentation of an 'activists' view' to leaders, and 65% did so for assessing their company's takeover attractiveness."
- Chris Ruggeri, national managing principal of Deloitte Risk and Financial Advisory's Risk Intelligence for Deloitte Transactions and Business Analytics LLP

Most companies still provide quarterly earnings guidance, but some are taking different approaches
The vast majority of CFOs say they provide guidance in traditional ways involving quarterly estimates and underlying assumptions, but some are not providing guidance at all or are providing less extensive or less frequent guidance. Furthermore, most IR-related analysis and communication still occurs quarterly, even when earnings guidance does not.

Companies are experiencing and responding to shareholder activism
Nearly 45% of CFOs said their company has experienced shareholder activism in the last three years, with activists communicating directly with management as the most common form of outreach. CFOs are listening: 52% of public company CFOs said they have considered or already made changes in response to shareholder activism, or that they expect to make a change in the next three years.

Private company CFOs biased toward staying private
Nearly 85% of private company CFOs said they rarely or never consider taking their company public. In addition, they cite substantially less extensive and less frequent activity around analysis and communications than do their public company peers.

Click here to download a copy of Deloitte's third-quarter 2019 CFO Signals survey.

Methodology
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.

The Deloitte CFO Signals survey for the third quarter of 2019 was conducted during the two-week period opening Aug. 5, 2019, and ending Aug. 16, 2019. A total of 172 CFOs responded. This survey seeks responses from client CFOs across the United States, Canada, and Mexico. The sample includes CFOs from public and private companies that are predominantly over $3B in annual revenue. Respondents are nearly exclusively CFOs. Participation is open to all industries except for public sector entities.

For more information about Deloitte CFO Signals, or to inquire about participating in the survey, please contact [email protected]

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SOURCE Deloitte