CFO Signals: A Review of Q2 With a Look Ahead to Q3

Deloitte Insights video

According to the latest CFO Signals™ survey, the rising optimism chief financial officers (CFOs) felt in the first quarter of 2012 was largely erased in the second quarter – especially in the U.S., where there was a net optimism of zero. Watch this episode of Deloitte Insights to learn more about CFO perspectives on Q2 and their projections for the future.


Sanford A. Cockrell III, National Managing Partner, U.S. CFO Program, Deloitte LLP; Global CFO Program Leader, Deloitte Touche Tohmatsu Limited
Ajit Kambil, Global Research Director, CFO Program, Deloitte LLP


Sean O’Grady (Sean): Hello and welcome to Insights where today we will be continuing our examination of the views of chief financial officers, specifically their perspectives on the second quarter and their projections for Q3. Now, this information is derived from Deloitte’s CFO Signals survey, a quarterly report which began in 2010. Now to review the latest findings, we are joined by two previous guests. In Detroit, we are welcoming back Sandy Cockrell, National Managing Partner of the U.S. CFO Program, Deloitte LLP and the Global CFO Program Leader, Deloitte Touche Tohmatsu Limited. And beside me in New York, we are also welcoming back Ajit Kambil. Ajit works with Sandy as the Global Research Director of the CFO Program at Deloitte LLP. Now Ajit, we are going to come back to you in just a moment, but I would like to begin with the man in Motor City. Sandy, your CFO Signals survey shows the rising optimism CFOs were experiencing back in the first quarter of this year was largely erased in the second quarter, especially here in the U.S. where net optimism is now at zero. I am interested to know what you feel is driving that response.

Sandy Cockrell (Sandy): Sean thanks and you are exactly right. In the first quarter, we were beginning to see some confidence building around Europe and the Eurozone getting its act together as well as in the U.S. There were some positive signals coming from certain matrix around our economy and people were starting to feel better about things, but the second quarter really turned around. Here in the U.S., there was actually a net optimism index of zero and really for a couple of reasons:

  1. Our continued focus on Europe and that’s probably the No. 1 risk concern that we see the survey saying of what CFOs have to say.
  2. The continued unemployment situation in the U.S. is something that is really becoming a top concern for our economy, especially given the fact that CFOs really don’t see that abating anytime soon.
  3. One thing that we are beginning to see and we are beginning to hear about is slowing growth in Asia and specifically China.

Sean: Thank you very much for that Sandy. Ajit, I would like to come back to you here in New York and the Signals survey also points out that in Q2, earnings growth slowed while sales growth slightly rebounded, but it was inconsistent across companies. Could you just elaborate a little bit on it?

Ajit Kambil (Ajit): Absolutely. I think what we are seeing is companies are dealing with huge macroeconomic volatility that Sandy just alluded to, but we are also seeing a stage where I think CFOs are beginning to tell us they could take out a lot of costs over the last few years, but they are not going to get as much earnings growth from cost cutting going forward and I think that’s a real challenge for them going forward and we are beginning to see that in some of the earnings projections that are being made and being adjusted downwards, especially this quarter right now.

Sean: Sandy, how about you? Do you agree with that?

Sandy: Yes. If you go back for the last nine quarters where we have done the survey, quarter after quarter, CFOs were really projecting higher earnings growth than they were sales growth. And I think they have gotten to the point now where you just can’t do that for so long with cost efficiencies and enterprise cost reduction and those kind of things. In looking out, a relatively small percentage of CFOs, about 30%, expect that they would be able to keep that up for more than 12 months. I think that is coming to an end and really the only way to get out of that is going to be macroeconomic growth in our economies, not only here in the U.S. and in North America, but in Asia and Europe.

Sean: Thank you for that. Now, of course, we have been talking about Q2. Let’s take a look at Q3. Ajit, what are you zoning in on for Q3?

Ajit: Okay, so when we do what we call our CFO Transition Labs and strategy refreshers, I think what I am hearing from CFOs is that they now have done all the easy things and they have had a great burning platform for change over the last few years, but they are beginning to ask more of their staff and their people in terms of doing the hard things and I would say, here are a couple of the hard things. They are looking at some of the sacred cows in their company that are not performing and beginning to think about how do we dispose of those assets and get better performance going forward. It may be looking at pricing and getting a pricing discipline that is executed well in the sales force and that’s a hard change to make happen. And in some cases, the CFOs are really becoming the partner of the CEO in driving cultural change and new behaviors in the organization to drive out performance. All of these three things are not as easy to do as some of the things they did in the past and I think they are beginning to have to ask more of both their finance organization as well as the broader organization for more than the last few quarters in terms of performance and doing things differently, so an inward focus on organizational change and also staying safe. There is still a lot of volatility out there and a lot of uncertainty about Europe. I think people are going to be kind of playing it safe until there is more resolution in the global macroeconomic environment and in the U.S. political environment.

Sean: Thank you for that, Ajit. Sandy, we are going to bring final thoughts over to you. I am interested to know what’s on your radar and how it might influence Q3 reporting?

Sandy: I would reiterate what Ajit did say. I think CFOs for the most part have pulled all the easy levers up to now, but a backdrop against that, which is unfortunate, is this inward focus I think will continue at least for another five or six months until there is clarity around elections here in the U.S., until the Euro crisis really begins to work itself out and the third issue that has now hit the radar screen that I am really starting to hear people talk about is the continuing slowing growth in China. That is a big concern because that will have huge consequences around the world.

Sean: It sounds like a period of time to keep our eyes and ears open. Sandy, thank you very much for that. We have been speaking with Sandy Cockrell and Ajit Kambil from Deloitte LLP’s CFO Program. Thanks to you both for your time.

If you would like to learn more about Sandy, Ajit, or CFO Signals, you can find that information on our website. It is

For all the good folks here at Insights, I am Sean O’Grady. We will see you next time.

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