Are CFOs waving a cautionary flag?
As I see it, companies remain focused on growth. But, a new Q2 study from Deloitte indicates that CFOs are still concerned about economic recovery while becoming increasingly worried about both external and internal factors that threaten their progress.
The CFO Signals survey found that:
"Own-company optimism" fell markedly in Q2 as only 40 percent of respondents say they have a more positive outlook, down from 62 percent in Q1. Moreover, the percent of respondents who say they are less optimistic doubled from 16 percent -- the lowest level in the previous 12 months -- to 32 percent.
Internal concerns are gaining prominence. Past pessimism was driven largely by deteriorating assessments of the macro-business environment. In Q2, though, roughly half of the renewed doubt is driven by internal concerns.
CFOs are having second thoughts about their capital investments. Nearly half (49 percent) of the CFOs surveyed are more worried about the quality of their capital investments than they were three years ago, and 40 percent are more concerned about the level of those investments.
Even so, the strategic focus of many companies continues to tilt toward revenue growth and away from cost reduction. More than half (52 percent) of the CFOs polled say that their companies' strategic focus is now on revenue growth, up from 47 percent last quarter.
More than half of CFOs (53 percent) cite revenue growth from existing markets as the most prevalent company challenge. Talent is a fast rising concern, as well, with 40 percent of companies ranking it among the top three, up from 31 percent last quarter.
More than 40 percent of CFOs indicate a preference for holding cash at this time. In fact, less than 10 percent of CFOs say they feel pressured to invest their high levels of balance-sheet cash; nearly 30 percent feel pressure to return cash to shareholders.
More than one-quarter of survey participants view detrimental policy as their most worrisome risk, indicating ongoing concern about government's impact on growth plans.
Almost 95 percent of CFOs expect rising input/commodities prices, up from 84 percent last quarter. Moreover, pricing trends are a top concern for 53 percent of companies, on par with industry regulation.
For the first time, "major change initiatives" tops the list of CFOs job stresses. Nearly 56 percent of all CFOs cite this stress, and half or more of CFOs in each of the eight sectors surveyed (other than Healthcare/Pharma) ranked it in their top three.
Despite their apparent wariness, CFO still continue to expect year-over-year revenue growth (7.1 percent this quarter versus 8.2 percent last quarter) and positive earnings growth (14 percent versus 12.6 percent last quarter), as well as increased capital spending (10.7 percent this quarter compared to 11.8 percent last quarter).
In addition, approximately 64 percent of CFOs expect domestic hiring increases although the hiring will not be substantial -- year-over-year domestic hiring growth projections for the second quarter of 2011 remained low at 2 percent and slightly higher than last quarter's 1.8 percent.
"It's fair to say that delivering growth is a lot harder than cost-cutting in this environment," explained Sanford Cockrell III, national managing partner, CFO Program, Deloitte LLP. "In addition to the continued regulatory overhang and economic uncertainty, the very real possibility of internal missteps is making CFOs understandably nervous and leading them to invest cautiously and formulate contingency plans."
To download a copy of the survey, visit www.deloitte.com/us/pr/cfosignals2011q2.