As their companies shift focus forward from recovery, CFOs are worrying about external and internal factors – from the soundness of capital investments to the possibility of internal missteps – that may affect their organizations’ growth agendas.
The study found that “own-company optimism” fell significantly this quarter as only 40% of respondents claimed having a more positive outlook, down from 62% last quarter. Meanwhile, reports of being less optimistic doubled from 16% to 32%.
CFOs reported that roughly half of their renewed doubt this quarter was driven by internal concerns. The other half appears to come from second thoughts about capital investments: 49% reported being more worried about the quality of their capital investments than they were three years ago, and 40% are more concerned about the level of those investments.
“It’s fair to say that delivering growth is a lot harder than cost-cutting in this environment,” said 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.”
CFOs do continue to expect year-over-year revenue growth, however (7.1% this quarter versus 8.2% last quarter), and positive earnings growth (14% versus 12.6%) as well as increased capital spending (10.7% this quarter compared with 11.8%).
Approximately 64% of CFOs also reported expecting slight domestic hiring increases: year-over-year domestic hiring growth projections for the second quarter of 2011 came in at 2%, up from last quarter's 1.8%.
The most prevalent company challenge, cited by 53% as a top concern, is revenue growth from existing markets. Another 40% ranked talent among their top three, up from 31% last quarter. More than 40% of respondents even indicated a current preference for holding cash, over investing (less than 10%) or returning their high levels of balance-sheet cash to shareholders (30%).
"CFOs foresee moderate growth, but rising volatility in input prices, government policy, and economic trends is making them wary of major investments," explained Greg Dickinson, who leads the Deloitte CFO Signals survey. "Boards and other stakeholders appear to agree that cash enhances strategic options, and are not currently pressing for capital investment."
Other key findings of the survey include:
- CFOs claim that 52% of their companies' strategic focus is now on revenue growth, up from 47% last quarter;
- Almost 95% of CFOs expect rising input/commodities prices, up from 84% last quarter;
- 25% of CFOs cited detrimental government policy negatively impacting their growth plans as their most worrisome risk; 53% named pricing trends as a top concern, on par with industry regulation;
- For the first time, "major change initiatives" tops the list of CFOs job stresses. Nearly 56% 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.
A copy of the survey may be downloaded here.
The Deloitte CFO Signals survey for the second quarter of 2011 was conducted from May 16 to May 27, 2011, and included a total of 78 CFOs participating in the study, with 75% representing companies with more than $1 billion in annual revenues and 75% from publicly traded companies. Each quarterly CFO Signals report analyzes CFOs' opinions in five areas: CFO career, finance organization, company, industry, and economy.