According to the survey, U.S. CFOs are continuing to show increased confidence, reflecting one of the largest increases in the survey's history. The Q4 CFO Optimism Index for the U.S. economy rose more than ten points (from 55.20 to 65.50) and the outlook for CFOs' own companies' also increased nearly four points (69.1 in Q3 to 73 this quarter). Interestingly, U.S. CFOs demonstrated a higher level of confidence in their companies' prospects for financial success than their European counterparts by more than seven points (65.60). In comparing their optimism about the current global economy, U.S. CFOs were undoubtedly more confident (64.30) than CFOs in Europe (58.20).
U.S. CFOs are also more certain in their plans for hiring than those in Europe. This quarter, the majority (64%) of U.S. CFOs plan to hire additional employees within the next six months, an increase from October when 56 percent of U.S. respondents stated the same. European respondents were largely split when it came to hiring strategies – less than half (46%) plan to hire, and a similar percentage (43%) stated they do not plan to hire.
"The CFO Outlook Survey has always shed light upon the plans and concerns facing U.S. CFOs, and adding France and Italy to our poll will provide us with global insight on the pulse of businesses," said John Elliott, Dean of the Zicklin School of Business at Baruch College. "CFOs of all of the countries surveyed are seeing improvements in the economic landscape from 2009, when they were hardest hit, although U.S. CFOs are trending higher than those in Europe."
In both the U.S. and Europe, slightly more than half of CFOs anticipate no change in their access to credit over the next six months (53% in Europe and 55% in the U.S.). However, the findings among the remaining CFOs in each region reflect an easing of credit conditions in the U.S. over Europe. More than a third (36%) of U.S. respondents anticipate easier access to credit, double the percentage of European respondents (18%), while almost three times the percentage of CFOs in Europe (29%) expect credit access to be more difficult than those CFOs in the U.S. (10%).
CFOs in both Europe and the U.S. expect continued significant growth in both revenue and net earnings in the next twelve months. Since they are expecting modest growth in their product prices (2-3%) the majority of the growth is in unit volumes and new products. However, the patterns are different in important ways. In the U.S., revenue is expected to grow at 10.5 percent while earnings growth is expected to be higher (16.6 %), suggesting continued strong gains in efficiency and cost controls over and above volume growth. In Europe, expected revenue growth (13.1%) is higher than net earnings growth (9.5%), suggesting that CFOs have less available capacity and face more pricing pressure on inputs.
Similar Business Challenges, Economic Woes, CAPEX Plans among U.S. & Europe CFOs
In terms of the impact of the global financial downturn and subsequent ramifications, 2009 was undoubtedly the most difficult year for CFOs in recent history. 55 percent of U.S. CFOs and 43 percent of European CFOs were hardest hit in 2009.
However, moving into January 2011, CFOs in the United States and Europe alike felt that revenue growth would prove to be the biggest challenge for their businesses in the first half of 2011. CFOs in the U.S. (39%) and Europe (33%) were also matched in their top worries for 2011. When asked to pick their top two worries for the year, domestic economic growth and consumer spending topped the list on both sides of the pond.
- Nearly a quarter of U.S. CFOs selected domestic economic growth (23%; another 18% selected this as their #2 worry); Twenty-two percent chose consumer spending as top on their list (another 13% selected this as their #2 worry). Other top worries include government regulation and healthcare costs.
- Similarly, more than quarter of European CFOs put consumer spending at the top of their list (28%; another 12% stated this was their #2 worry), while 25 percent chose domestic economic growth as their #1 concern (23% cited this as their #2 worry). Government regulation and global competition followed as key concerns.
CFOs across the board are demonstrating prudence as it relates to their capital expenditure. Nearly half of CFOs describe their current activity as "spending cautiously" (47% in the U.S.; 52% in Europe). However, a quarter of European CFOs and 30 percent of U.S. CFOs are spending at a normal rate. This is progress from six months ago, when only 19 percent of U.S. CFOs were spending normally. Technology is a central focus for capital expenditure, with 69 percent of U.S. CFOs and 56 percent of European CFOs directing their investments toward this area. Over the next 12 months, U.S. CFOs expect an 11 percent increase and European CFOs expect a six percent increase in technology spending. Other areas of CAPEX focus include expansion into new and emerging markets (21% of U.S. CFOs and 34% of European CFOs) and machinery (36% of U.S. CFOs and 33% of European CFOs).
"The impact of the financial downturn was far reaching, and our findings demonstrate universally compelling concerns and business issues," said Marie Hollein, President and CEO of FEI. "Many local economies have been hit hard in the past few years. CFOs globally understand that consumer spending is critical to restoring their economies to pre-recessionary levels and maintaining their revenues. The findings also reiterate the need for CFOs across the globe to have an open dialogue about these issues, something that FEI continues to strongly advocate and facilitate."
U.S. CFOs Negative on Impact of Healthcare, Positive on Tax Reform
While U.S. CFOs this quarter demonstrated optimism in overall economic conditions, their outlook on regulations closer to home were dismal. CFOs in the U.S. were asked about the impact of the healthcare reform passed in 2010, on both Americans and their own companies.
- Fifty-nine percent of U.S. CFOs surveyed felt that the law has impacted the country negatively, with only 17 percent believing the impact of the reform has been positive; close to a quarter (24%) felt there was no impact.
- U.S. CFOs had an even stronger opinion when it came to the effects of the bill on their own companies. Only four percent felt it was showing a positive impact for their business, while the large majority (64%) felt the impact was negative. Nearly a third (32%) of those respondents observed no impact toward their businesses since it was passed last year.
As most CFOs interpret the healthcare act to be negative for their companies, many are taking actions to offset the added costs to their businesses. While the average increase in costs related to the healthcare bill was only five percent, nearly half of U.S. CFOs (49%) said that they had to increase the employee co-pay, about a fifth (21%) reported a reduction of benefits for employees, and 17 percent have decreased the quality of their healthcare packages. A third of CFOs have taken no actions to offset expenses.
Potential tax reform is also on the minds of U.S. CFOs at the start of 2011, who appear encouraged about the outcome of a new tax package. Sixty eight percent of those surveyed in the U.S. felt the effect would be positive for the U.S. economy, with far less believing that it will have a negative effect (14%) or no impact at all (18%).
Additional global findings from the survey include the following:
- Targets for Expansion: Nearly three quarters of U.S. CFOs (72%) are targeting North America for expanding operations, followed by Asia (25%) and Latin America (22%). European CFOs also prefer to keep expansion close to home: 40 percent are targeting Western Europe, 33 percent are looking at Central Europe, and 31 percent are looking at expansion opportunities in Asia. Specific expansion to China, a region of interest for many companies globally, was not an immediate target for CFOs participating in the survey: a little more than a quarter (28%) of European CFOs and far fewer U.S. CFOs (16%) are planning an expansion of their operations to China in the next 12 months.
- M&A Activity: When comparing M&A plans relative to the previous quarter, over a third (36%) of U.S. respondents to the Q4 survey said their company's interest in making acquisitions has increased. Only five percent of CFOs said their interest in M&A had decreased, while most respondents (60%) see no change in their interest. European CFOs echoed a similar sentiment for their M&A targets: though most felt their interest has stayed the same (65%), nearly a third (30%) felt their interest in making acquisitions had increased.
