Bloomberg TV Interview, September 17, 2013
Sandy Cockrell, national managing partner, U.S. CFO Program, Deloitte LLP, discusses the highlights from the Q3 2013 North American CFO Signals survey results during Bloomberg TV’s CFO Week segment.
Sara Eisen (Sara): Well, it’s Fed Week, Tom, it’s also CFO Week on Bloomberg Television where we take a hard look at the issues keeping the top of corporate finance up at night and who better to speak to than Deloitte’s Sandy Cockrell. Sandy leads the CFO Program at Deloitte, advising finance executives around the world and he has a new survey this less talked about disconnect and improving economy but a less optimistic year ahead for corporations. Sandy, we want to talk to you about the outlook here. I just want to know what CFOs say about what it means for hiring. Do they plan to hire?
Sandy Cockrell (Sandy): Yes, but it is pretty dismal. This past quarter what they are expecting is about 1.3 percent hiring left over the next year, which, you know, in terms of a macroeconomic driver, I think economists and others will like to see a higher number around that. That is up from the survey average over the last 14 quarters of about 1.6 percent or 1.7 percent, but it is still not what people are looking for.
Sara: How accurate are your surveys? Have you ever gone back and looked at the sentiment and the optimism or pessimism and whether that actually translated into hiring and results for companies?
Sandy: Yes, it does. And actually we are very careful with that. So in terms of optimism and pessimism this quarter, what we are expecting to see is 42 percent of the CFOs feel like, over the next year, they are more optimistic about the economy, whereas 24 percent are more pessimistic. So we have got about 18 percent with what we call optimism index. Now, this is the first time in the history of the survey that we have had three consecutive quarters where we have had a net optimism index. So that’s actually good news and we feel pretty good about that.
Tom Keene (Tom): Where is the caution coming from? I mean you come out of Chapel Hill, you got a terrific work experience actually speaking to business people about what they do and what they wish to do. Where is the wish to do right now? Why the gloom?
Sandy: Well, there is no question about it. The big issue is the slowdown in your three regional economies around the world, waiting for that to come back.
Tom: It’s just a nominal GDP issue.
Sandy: Yes and then, secondly though is what will governments do, what will governments do to try to correct that.
Tom: So it is not the generation of a constructive net present value project by project. It is not a microanalysis of the corporation.
Sandy: No and in fact to that point, I think CFOs today act much more as strategists and think about the longer term. So it is not as discrete as looking at product by product, company by company, issue by issue; they are really looking at the longer term and this is a big issue… this is a macro issue as what will happen around the world in terms of these global economies.
Scarlet Fu (Scarlet): One of the longer term issues is the cost of health care, certainly in the United States. One other survey from Bank of America Merrill Lynch of CFOs found that most CFOs rate health care cost as a primary concern. Do you see any benefits at all from 'Obamacare' on the way CFOs plan?
Sandy: It’s unclear yet. They really don’t know. I mean we are beginning to see that because there is a draft down in terms of hiring figures until we get some clarity about what it means, but there is no question even at Deloitte. I mean we are very cautious about what it will mean to our health care costs.
Scarlet: So it’s only negative so far.
Sandy: Only negative. I think caution is probably the more proper word.
Tom: This is fascinating. I just finished the John Hay one volume that goes up to about 1905 and even there in 1870-1880 and in 2013, there is a doom and gloom, we can’t grow anymore. John Taft is here with us with RBC Capital Markets. You live this every day. That it is a zero-sum game and we are just at a point and we can’t get bigger; push against that gloom.
Sandy: Very interesting because when we look at some of the metrics that we follow — sales, revenue growth, CAPEX and hiring — we look at sales where they are forecasting basically 5 percent year-over-year sales growth over the next year. Earnings growth is only 8 percent. That’s a survey low. Now, the interesting thing we have been talking about is we have been anticipating this may come with that delta between sales growth and earnings growth is beginning to tighten and our view is that many companies have taken about as much cost as they can out of their infrastructure and until we see economies improve and the topline really improve, it will be tough to grow the bottom line.
Tom: Sandy, thank you. Sandy Cockrell with Deloitte.
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