Deloitte CFO Signals™ Survey: Despite New Challenges, CFOs Continue Positive Outlook on North America

Currency exposure, equity markets and global economic concerns not enough to disrupt positive sentiment

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Apr 02, 2015, 07:45 ET

NEW YORK, April 2, 2015 /PRNewswire/ -- Surveyed chief financial officers (CFOs) recorded a ninth straight quarter of optimism regarding their organization's prospects, continuing to forecast significant growth in earnings and hiring, according to Deloitte's first quarter (Q1) CFO Signals™ survey. While CFOs expressed concern with challenges, such as a strengthening U.S. dollar, a lagging global economy and U.S. equity markets swings, those CFOs surveyed maintained a steadfast level of positive sentiment.

The survey, which tracks the thinking and actions of nearly 100 CFOs from large North American companies, indicated steady optimism among CFOs. In the first quarter, 48 percent of CFOs expressed improving optimism, relatively unchanged from last quarter. However, only 14 percent expressed declining optimism, improving on last quarter's 16 percent. Overall, net optimism increased quarter-on-quarter from +33.3 percent to +34.4 percent.

"This quarter suggests that optimism among CFOs is resilient," said Sanford Cockrell III, national managing partner, Deloitte LLP, and leader of the Deloitte CFO Program. "While new uncertainties like currency fluctuations and market shifts became elevated, sentiment continues to hold strong."

This optimism is revealing, as CFOs' expectations for key performance metrics were mixed, partly due to a tumultuous quarter in the energy/resources sector. As a whole, the survey captured CFOs' highest-ever bias toward growing revenue over cutting costs. Revenue growth expectations receded, but were still better than they were a year ago. And despite a drag from energy/resources companies, earnings expectations rose close to a six-quarter high, increasing from 9.7* percent last quarter to 10.6* percent. In total, 79 percent of surveyed CFOs expected year-over-year gains in earnings. Additionally, hiring expectations in Q1 rose to 2.4* percent, matching the highest level in two years. U.S. CFOs expectations rose from 1.7* percent last quarter to 2.3* percent, falling between their Canadian (1.4* percent) and Mexican (4.7* percent) counterparts.

Despite these figures, CFOs noted a number of new and preexisting challenges. The rising strength of the U.S. dollar, global economic performance and equity market shifts are causing some CFOs to take action. In response to the U.S. dollar rise, several companies that have not previously managed currency risks said they are now looking at options to do so. While a substantial proportion of CFOs said they do not have significant foreign currency exposure, quite a few reported becoming more deliberate about their hedging strategies.

CFOs' outlook on the global economy remained skeptical. Just 18 percent regarded China's economy as good, down from 34 percent last quarter, and only 13 percent expected improvement within a year, down from 25 percent in Q4 2015.

Still, more than 25 percent of CFOs expressed plans to expand operational capacity in China. Expectations for Europe remained dismal as well, as 2 percent of CFOs surveyed described Europe's economy as good, and only 10 percent expected it to improve in the next year.

Nearly half of CFOs (46 percent) continue to believe that U.S. equity markets are overvalued, but this is a significant decrease from 61 percent last quarter. Nearly all CFOs (93 percent) say debt is currently an attractive financing option, and one-third of public company CFOs view equity financing favorably.

Shareholder activism is another issue emphasized by CFOs this quarter. Just under three-fourths of public company CFOs said they have experienced some form of shareholder activism.

Similarly, nearly half of public company CFOs surveyed said they have changed investor relations approaches. They tended to cite heightened monitoring of activist activity, more proactive planning around activists' concerns and more (and more preemptive) communication with current and potential investors.

"Large public companies are clearly feeling the effects of shareholder activism," said Greg Dickinson, director, Deloitte LLP, who leads the North American CFO Signals survey. "About half of CFOs in this quarter's survey said their companies have made at least one major business decision specifically in response to activism."

Additional findings from the Deloitte Q1 CFO Signals survey include:

Sales and capital spending expectations down: Revenue growth expectations fell to 5.4* percent from 6.0* percent last quarter, mostly due to declining expectations from the energy/resources sector. Capital spending expectations declined slightly to 5.2* percent from last quarter's 5.5* percent, also influenced by lower expectations from the energy/resources sector.

Economic shifts causing changes to geographic focus: Many CFOs indicate a higher focus on North America, China and emerging markets, and a lower focus on Europe. Many also indicate a lower exposure to the euro, and there was an even split between companies increasing and decreasing their debt levels.

A good time to be privately held: CFOs of privately-held companies report a narrower range of reporting and communication activities and also say they perform these activities less often than their public-company counterparts. Relatively few report suffering from limited financing options (likely aided by recently-favorable cash levels and debt markets).

To download a copy of the survey, please visit: http://www.deloitte.com/us/cfosignals2015Q1.

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

About The Deloitte CFO Survey
The Deloitte CFO Signals™ survey for the first quarter of 2015 was conducted between Feb. 9, 2015 and Feb. 20, 2015. Eighty-two percent of the 96 CFO respondents were from organizations with more than $1 billion in annual revenues, and 68 percent were from publicly traded organizations.

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 [email protected].

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 [email protected] or visit www.deloitte.com/us/thecfoprogram.

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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