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Fox Business Network Interview, March 31, 2014

Sandy Cockrell, national managing partner, U.S. CFO Program, Deloitte LLP, discusses the highlights from the Q1 2014 North American CFO Signals survey results.

 

David Asman (David)
Well, if you're looking for a no-spin zone in a corporation, usually you have to turn to the CFO; a solid CFO, maybe criticized for holding back a visionary CEO, but he could be praised for warning investors of a company spending more than what's coming in. That's why a lot of investors look closely at Deloitte's quarterly CFO survey, which is run by our next guest, Sandy Cockrell, national managing partner, U.S. CFO Program, Deloitte LLP. We had you for the last quarter's, [and] we really enjoyed that and we wanted to invite you back because it's a bellwether, what's happening to the economy, and actually, the overall message is that these CFOs aren't very optimistic right now, are they?

Sandy Cockrell (Sandy)
Yeah, they're optimistic, but not near the levels we've seen at this point in a calendar year over the last four years of our survey.

David
Why is that?

Sandy
Well, I think it's a couple of things. Number one, regulation continues to be, um, a thorn in their side. They're also worried about...

David
In other words, the cost of doing business is increasing, not decreasing.

Sandy
Yes. The cost of reg…and uncertainty around future regulation. And then, number two, consumer demand is a big issue here, and with the muted unemployment growth, uh, you know, and that's a big issue for CFOs as they predict out their own company prospects.

David
Well, if you look at sales growth and capital spending growth, it looks fairly healthy to me, you know?

Sandy
Yes. Yeah, sales growth at 4.6 percent is slightly up from the survey low from last quarter, 4.1 percent.

David
Can you put those numbers back on the screen? Yeah, go ahead.

Sandy
And then earnings growth, the earnings growth at 7.9 percent is the lowest in the history of our 4-year survey.

David
So...so it is low even though it appears to be high, but it…we're nowhere near moving toward a recessionary period, are we?

Sandy
No, no, and the survey averages 11.5 percent for earnings, so it's down but it's still fairly healthy. Interesting thing is the delta between the sales growth and earnings growth is beginning to narrow.

David
Now about hiring? Domestic hiring, specifically.

Sandy
Hiring is tough. Hiring is very tough, very anemic; 1 percent hiring growth projected for this next year.

David
It's because, once again, if you're looking for some place to squeeze, it's in the area of personnel.

Sandy
Yes, and I think…I think CFOs and businesses in general are very concerned about adding to payrolls at a point where we have…

David
Boy, 1 percent growth…

Sandy
1 percent growth.

David
…on domestic hiring. I mean that's…

Sandy
That's really tough.

David
…that's not gonna do anything, really, to cut into our unemployment problem!

Sandy
It's really tough, and that…and that compounds into the way that CFOs would basically forecast top-line growth.

David
Actually, that figure may give us an insight into why Janet Yellen spoke the way she did today, saying that, indeed, while there's some very positive signs in the economy, generally speaking we may have to keep doing what we're doing.

Sandy
Correct. And her unemployment numbers that, you know, were still…the 5.4 percent range, to bring those down to that level from where we are today, a lot of movement's gotta take place.

David
And it's the labor participation rate, of course; people just moving out of the labor market that really bothers her...

Sandy
Yes.

David
…and it does look like the corporations are gonna be letting ‘em back in?

Sandy
That's true.

David
All right. Uh, Obamacare; you talked about regulations. That must be one of the foremost in people's minds, the CFO's minds.

Sandy
Yeah, the big story there…I think, two stories. Number one, employees need to be prepared to pay more for their healthcare, and they probably better go join a gym. 60 percent of the CFOs said that they will pass additional costs onto their employees.

David
Wow!

Sandy
And number two, two-thirds of them said that they will start to focus heavily on wellness programs as part of an overall way to reduce...

David
Now, let's just start…talk about that first part. That means that in 60 percent of the corporations, uh, employees are gonna find their health bills going up…

Sandy
Yes. Yes.

David
…directly as a result of the cost of Obamacare.

Sandy
Exactly. Those costs will get passed on.

David
And this means that the consumer will have less money jingling around in their pocket…

Sandy
Yes. It could hurt.

David
…which may affect sales overall in the economy.

Sandy
That's very true.

David
Wow. And what about the other…the other part of that? Uh, the fact that…that what they're gonna be focusing on is trying to increase the health of the employees. I mean, that's a good thing.

Sandy
Yes! That's a good thing, but that takes…well, and it takes money to do that as well.

David
What is your impression…you've been doing this for a while, now.

Sandy
Yes.

David
What is your impression of this overall survey? Did it surprise you that, in fact, the optimism, while it was there…

Sandy
Right.

David
…it was much less than you expected?

Sandy
Well, the net optimism for this quarter was 27 percent, so 27 percent more…the CFOs were more optimistic for the next 12 months. But we always expect the first quarter to be much…much healthier than that. In fact, it's a 42 percent average over the last four years when you look at the first quarter.

David
So, first quarter's generally pretty good.

Sandy
Generally pretty…CFOs are closer to their numbers. They just went through their planning cycle. They feel good about their numbers, so these…all these metrics are down from what we've seen before.

David
Now, profitability.

Sandy
Yes.

David
Uh, again, companies have squeezed so much, it's hard to imagine them squeezing anymore.

Sandy
Yeah.

David
Are we gonna see a growth in profit coming up?

Sandy
Well, that ultimately is the top-line. I think we're at a point now where companies are gonna have to grow out of this…

David
On the top line, not the bottom line.

Sandy
Yeah.

David
So there's gotta be more revenue coming in.

Sandy
That's exactly right. I think companies have done a tremendous job of becoming so productive and efficient over the last three years. It's very tough to go in and squeeze any more.

David
So, as we're heading into earning season, we're beginning to get the numbers coming out in a couple of weeks now…

Sandy
Yeah.

David
…the focus should be on revenue.

Sandy
Yes. Yeah, that's the…how are they gonna grow their businesses? You know, what are the plans to do that from a strategic standpoint?

David
Sandy, thank you very much. Sandy Cockrell, Deloitte. We thank God for Deloitte! Thank goodness it's doing what it's doing.

Sandy
Absolutely.

David
Appreciate you coming in!

Sandy
Thank you for having me back.

David
Come back again next quarter.

Sandy
Okay.

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