CFO SignalsTM: 2012 Q1 Results
Large company CFOs more optimistic about earnings, hiring and investment — but not revenue
Results: CFO SignalsTM Q1
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Highlights: CFO SignalsTM Q1
Since our last survey, several macroeconomic factors have been improving – or at least stabilizing. Unemployment numbers have been mixed but directionally positive. Corporate earnings have been leveling off but still largely trending upward. European debt issues linger, but there appears to be rising expectation of (or at least hope for) improvement. And broader market sentiment has improved, with Dow and S&P 500 valuations rising about 15% since our last survey.
CFO optimism seems to have followed suit, rising markedly after two quarters of sharp declines. But what is not clear is whether CFOs are optimistic in absolute terms, or just optimistic relative to where they were over the past two tumultuous quarters. Continued declines in year-over-year revenue may suggest the latter, but rising expectations for earnings, capital investment, and domestic hiring appear to indicate that many companies are ready to start pushing forward again.
Earnings gains outpace revenue gains
Net optimism (the spread between CFOs citing rising and falling optimism) turned negative near the end of last year – to the tune of a stunning -24 percentage points in 3Q11 and another -9 points last quarter. But the “good” news is that multiple quarters of rising pessimism make it easier for optimism to improve, and that is what happened this quarter.
Growth and investment up along with domestic hiring (finally)
In line with their rising earnings expectations, CFOs’ investment and hiring expectations appear to reflect improved optimism. In contrast to the last two quarters, companies’ growth plans appear to be spurring hiring at home. CFOs’ expected domestic hiring gains of 2.1%* are more than double last quarter’s survey-low 1.0%*, and just over half of CFOs project gains. Similar to rising earnings projections, growing investment and hiring expectations raise questions about reasons for confidence as revenue appears to be leveling off.
Significant worries – mostly global – remain
Although CFOs are more optimistic and project better company performance, they are certainly not without substantial worries. And most of those worries revolve around Europe and global economic developments
Companies want (and plan) to invest their cash – but they’re hedging their bets
U.S. corporations approached 2012 with an estimated $2 trillion in cash sitting on their balance sheets, and about 20% of that cash appears to be held abroad (the U.S. is highest at 24% and Canada is lowest at 11%). Overall, it appears that most cash is held as government bonds, although use of regular bank deposits and money market accounts is also high. Still, there is significant variability by country and industry.
Less ambiguity; more influence
Although there is still considerable uncertainty and worry about national and global challenges, companies appear to be getting back to their core operations. Whereas findings from past quarters indicated a heavy focus on strategy-setting and prioritization, this quarter’s seem to indicate a stronger focus on execution. Moreover, “strategic ambiguity,” which has been a perennial top CFO job stress, finally fell out of the top three.
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