Government Can Help Manufacturers by Getting Out of Their Way

Most CFOs are optimistic about the economy but see gridlock as a major barrier to growth.

2012 is an election year, so it should come as no surprise that CFOs at U.S. manufacturing companies view government involvement as the biggest barrier to business growth. According to a survey of CFOs conducted by Bank of America Merrill Lynch, another area of concern for CFOs is the volatility of oil prices, which survey respondents believe could have the biggest potential impact on the U.S. economy.

All told, the CFOs polled are largely optimistic about the U.S. economy's health, but compared to a year ago, that optimism has dimmed somewhat. Seventy percent of respondents in spring 2011 expected the U.S. economy to expand throughout the year, whereas in spring 2012 that number had dipped to 63%. Similarly, revenue growth expectations have dropped a bit, from 70% in spring 2011 to 64% in spring 2012. However, on the bright side, fully half (50%) of all respondents now expect their company's profit margin to increase in 2012, versus 46% a year ago.

One of the respondents to the survey, Mark Sturgeon, CFO of Advanced Drainage Systems (ADS), a $1 billion manufacturer of corrugated plastic pipe, points out that his company has added three manufacturing plants in the past year, primarily in areas tied to agriculture.

The biggest thing Sturgeon is concerned about is deficit spending on the part of the government. President Obama and the U.S. Congress have to get together on some type of solution, he says. "They know that Social Security and Medicare and tax reform -- corporate and individual -- have to happen, but they don't do it, and it's just not acceptable because they're mortgaging the country. Eventually rates are going to soar, and our standard of living is going to go down a lot, and it's just inexcusable. They're not moving, in my opinion."

ADS has been aggressive throughout the economic downturn, Sturgeon says, but his job is to be careful with the balance sheet. "If you're not sure where the economy is going, you need to take advantage of the opportunities but not overleverage yourself," he says. It's important, he says, that CFOs "have a good cash flow and keep the balance sheet strong, and that allows you to strengthen your market position and grow."


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