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Fox Business Network Interview, January 8, 2014

Sandy Cockrell, national managing partner, U.S. CFO Program, Deloitte LLP, discusses the highlights from the Q4 2013 North American CFO Signals survey results.

 
David Asman (David)
No manager has a clearer idea of their company's bottom line and the surrounding marketplace than the chief financial officer, and no one has done a better job of surveying the views of our nation's CFOs than the accounting firm Deloitte. The Deloitte LLP Managing Partner in charge of the CFO Program is Sandy Cockrell, who joins us now in a Fox Business Exclusive to discuss exactly what they've found. Sandy, thank you for coming.

Sandy Cockrell (Sandy)
Thank you.

David
First of all, what kind of companies are you surveying here?

Sandy
These are about a hundred of the country's largest companies, multinationals who trade across the world in all different industry segments.

David
Now, there is optimism, particularly about the internals. Everybody's getting really tight, really good at cutting expenses, but there's some pessimism, particularly about sales growth. Explain.

Sandy
Yes, what our survey said is that CFOs are forecasting about a 4.1 percent year-over-year sales growth over the next year. That's actually a survey low. We've run this survey for about four years now, 15 quarters.

David
This is the smallest increase. There you see it, the number three on that list there: sales growth, 4.1 percent. But the incredible thing is that earnings are twice that. How can you double earnings of sales growth?

Sandy
Well, great point. That's actually been the trend the last few quarters as we've seen in the survey. What we found is the revenues have continued to pretty much flatten out, but earnings have actually been pretty healthy this quarter at 8.6 percent, which is up a little bit from last quarter's survey low of 8 percent, but still down from the survey average of 11.6 percent.

David
Is that because of the lay-offs and because of tightening? I mean, there's a limit to how much tightening you can do to get the earnings.

Sandy
But CFOs are still pretty confident that they can execute internally on cost control and things like that. That's why we see the internal optimism.

David
You know, the interesting thing is that productivity's come down a little bit in this country, and yet, I imagine that is part of the reason why they can keep earnings up despite sales coming down.

Sandy
Absolutely. There's no question about it, but what they're really looking for is external growth.

David
All right. What's the reason why sales are going to be down?

Sandy
Well, they're not forecasting any external growth in the marketplace. When you look at the major economies in which these companies trade, they're not very confident that there is general economic growth to lift that.

David
Now, these decisions are very significant, these prognostications, because it's the CFOs who advise the managers below them to buy equipment...

Sandy
Yes.

David
...based on their growth figures, so does that mean that the big ticket items are not going to be bought as much because they're having lower growth forecasts?

Sandy
Actually, what's being forecast now is about a 6.5 percent increase in capital spending, which is, again, below the survey average. It's up from last quarter, but it's still relatively low.

David
Interesting. All right. The cost of regulations, in particular, Obamacare. Let's talk about Obamacare. We know small and medium-sized companies, the “49ers” and above, are getting hurt particularly hard. How about the big guys?

Sandy
Yeah, so what we're seeing is two things. Number one: Trends. There's no question that across this company group they are pushing more cost to the employees, but then what the survey says is about 40 percent of the CFOs...

David
You have to, by the way, say 'survey says'.

Sandy
... the survey says 40 percent of the CFOs said that they are pushing cost to their employees because of Obamacare.

David
So the employees are going to bear the brunt of this.

Sandy
Yes. That's what we're going to see.

David
In terms of higher out-of-salary cuts?

Sandy
Yes, and two things; number one, sharing cost in premiums and then also higher deductibles to keep the plan costs down.

David
And hiring of workers. If you have fewer workers, particularly if you have more part-time workers, you could probably save money on Obamacare.

Sandy
That's right.

David
Is that coming into their forecast?

Sandy
We asked the question. At this point, I think it's a little too early to tell. Only about four percent of the CFOs said that they actually shifted from full-time workforce to part-time, but, you know, we're still a ways away from the employer mandate actually kicking in, so those questions will be a lot more relevant the next few quarters.

David
Okay, it's not just Obamacare. We also have a whole bunch of new financial regulations. How are they factoring that in?

Sandy
Yes. Regulations are the number one cited risk, so to speak, that CFOs are worried about, especially when you get into industries, and that's something that they have a big fear will actually continue to curtail their growth of having to comply with regulations and things like this that are unforeseen and unpredictable.

David
Now, let's end on an optimistic note, because we started on a pessimistic one... the internals are so good, have you ever seen the internals in terms of the way these, are big corporations run better than they are now?

Sandy
No, they're actually extremely efficient, and in fact, this is the first time in the history of the survey that we've seen four consecutive quarters where CFOs have been more optimistic than less optimistic, so that's a pretty good sign.

David
And, does that mean that our global positioning is terrific? Because we always hear now, well, we've been hearing it the past couple of weeks, look to Europe, because that's where you should put your money, but it sounds like what you're saying is, we're gonna beat the heck out of those guys!

Sandy
Yeah, it's actually pretty interesting. If you look at the North American economy, CFOs are relatively optimistic about that. More than half of them say that it will be better a year from now. China, roughly the same thing. About 40 percent of the CFOs say it's good today, it'll be good a year from now. Europe is a different story. Only 4 percent of the CFOs said that Europe had a good economy today, and less than a quarter expect it to improve in a year.

David
Sandy Cockrell is Deloitte LLP’s CFO Program national managing partner. Great study!

Sandy
Thank you.

David
Great survey. Thank you for bringing it to us.

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