CFO SignalsTM: 2011 Q4 Results
European financial woes take toll on near-term CFO expectations
Results: CFO SignalsTM Q4
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Highlights: CFO SignalsTM Q4
Remarkable volatility in the macro-business environment clearly rattled CFOs last quarter. After six straight quarters of mostly positive sentiment, large-company CFOs turned decidedly pessimistic thanks to the combined impacts of the U.S. debt deal, the downgrading of U.S treasuries by S&P, rising sovereign debt troubles in Europe, global economic malaise, and governments’ continuing struggles to find solutions.
Little has improved this quarter. Sovereign debt issues in the euro-zone escalated this quarter. Employment languished, fueling increasingly-visible social unrest. And governments’ struggles to address those financial and social challenges underscored the elusiveness of the solutions required to generate long-term improvement. Little wonder that economic risks and sovereign debt issues were named among the most worrisome risks by nearly all CFOs this quarter. Those macroeconomic risks have also put a damper on CFOs’ growth plans.
Early 2011 optimism has faded, but CFOs still see growth
Since the first quarter of this year (when more than 60% of CFOs were reporting increased optimism), quarter-over-quarter optimism has fallen steadily and now sits at just 27%. And in the wake of last quarter’s 53% pessimism, 35% of CFOs report no change this quarter and 38% actually report further declines. Net optimism, which turned negative last quarter for the first time, improved a bit from -24 percentage points to -11.
Growth and investment, yes. Domestic hiring, no.
Despite their pessimistic sentiment, many CFOs appear to expect a brighter future. Few CFOs see economic conditions improving by the middle of 2012, but nearly 90% expect their home economies to be in better shape three years from now. This might explain why many companies (especially those in the Manufacturing, Retail/Wholesale, and Energy/Resources sectors) appear to be regaining some of their more typical proactive thrust this quarter.
Competition for revenue, and possibly for capital
Even as companies eye longer-term growth, they are focused on protecting near-term profitability. Continuing global economic malaise appears to be causing rising uncertainty around global market demand and heightened competition for revenue. Pricing trends are a top concern for 52% of companies (up from 40% last quarter) and new competitive tactics are on the rise.
Unrelenting uncertainty thwarts earnings guidance
As companies look ahead to 2012, unrelenting volatility and uncertainty are creating substantial difficulties when it comes to predicting company performance and managing shareholder expectations. Consequently, many are choosing to either provide conservative estimates or to not provide guidance at all.
Growing pains for finance
This quarter’s findings show that the macro- and microeconomic challenges that have been driving CFOs’ toward their strategist and catalyst roles are creating similar demands on the broader finance organization – and those demands are generating significant growing pains.