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CFO SignalsTM: 2011 Q1 Results

Companies are focused on generating post-recovery momentum.


The fourth quarter of last year appears to mark a turning point in the economic recovery for large-company CFOs. With capital supply and efficiency gains largely accounted for, companies now appear focused on creating their own thrust in a post-recession world.

The shift is reflected in CFOs’ more conservative expectations for sales and earnings, which have moderated after several quarters of very strong growth expectations. In addition, companies appear to be making a pronounced shift in focus away from cost cutting and toward revenue growth, with new products and services, newly-acquired entities, and foreign markets seen as major growth drivers. 

While this increased focus on growth is expected to drive rising investment, it is not expected to generate large increases in domestic hiring.

This heightened growth focus is causing a corresponding shift in companies’ most pressing challenges and concerns. In particular, while the state of domestic economies is still worrisome, companies are increasingly concerned with the government’s effects on their growth plans. They are also more focused on inflation and rising input prices, as well as the possibility of execution missteps that could thwart their growth plans.

As companies’ strategic focus and challenges change, CFOs and their organizations are clearly playing broader and deeper roles. The demands are changing and, as our past surveys have indicated, the stereotype of a “guardian-personality” CFO playing a narrow “steward” role rarely applies in today’s large companies.

Both - summary and full report documents (PDF) are available for downloading, under "Attachments," at the bottom of this page

First on CNBC

Watch the interview with Sandy Cockrell, National Managing Partner, U.S. CFO Program, from as Sandy discusses the shifting CFO strategy and other results from the latest CFO SignalsTM survey.

Expectations Continue to Stabilize

CFOs optimistic, but sales and earnings expectations are moderating

Last quarter we posited that, after a rather pessimistic 3Q10, optimism appeared to be rebounding or at least settling into a narrower range. This quarter’s results seem to confirm this hypothesis with 62% of CFOs reporting increased optimism compared to 53% last quarter. Moreover, growth in pessimism is now at its lowest level in the last 12 months with just 16% saying they are less optimistic (21% last quarter).

CFOs’ optimism is being buoyed by improving assessments of both the macro-business environment and company-specific factors. Thirty-six percent of CFOs are more optimistic this quarter primarily because of factors external to their companies, and 26 percent are more optimistic primarily because of internal factors.

Although CFOs are largely optimistic, their expectations for sales and earnings are moderating. Last quarter, after two quarters of rising expectations, CFOs began projecting lower year-over-year sales and earnings growth. Although projections rebounded a bit this quarter, they are still more in line with last quarter than with previous quarters -–possibly indicating that 4Q10 marked a dissipation of the recovery’s tailwinds and the end of the easiest performance gains.

CFOs expect improvements in year-over-year revenue growth (8.2%* this quarter versus 6.5%* last quarter) and earnings growth (12.6%* versus 12%* last quarter), but high variability again suggests significant variability in companies’ circumstances. Median expected sales growth is still just 5% (the same as last quarter) and median expected earnings growth is 10% (up from 8% last quarter).

Shift from Recovery to Growth

Capital spending, M&A, and R&D are rising

Results from this quarter’s survey indicate that many companies are nearing or already beyond a major shift from recovery to growth. CFOs say their companies’ strategic focus has shifted toward revenue growth and away from cost reduction and that revenue growth is now their dominant company challenge (revenue growth from existing markets and from new markets rank first and second, respectively). Nearly 30% of CFOs say they are focused on M&A activity and 40% expect revenue from recently or soon-to-be acquired entities to be higher within the next year than it was before the recession.

More than 70% of CFOs expect revenue from new products and services to be higher a year from now than it was before the recession, and their expected investment appears to be rising accordingly. Capital spending growth estimates rose to nearly 12%* this quarter (up from 8.7%* last quarter) and expected R&D growth rose to nearly 6%* (up from 4%* last quarter). Meanwhile, dividends are expected to rise 4.4% over the next year.

Looking to Foreign Markets

Domestic competition and slow growth appear to drive foreign markets focus

Expected sources of new growth are also shifting. Slow economic growth and stubborn unemployment are elevating competition for domestic growth, with pricing trends and new competitive tactics now top industry-level challenges. Consequently, companies are increasingly looking to new geographies for growth.

Two-thirds of CFOs expect revenue from foreign markets to be somewhat or markedly higher within the next year than it was before the recession. CFOs also expect growth in foreign staffing to increase at roughly twice the rate for domestic staffing. In addition, more than half expect higher revenue from new or greenfield operations.

New Challenges and Concerns

CFOs worry government policy and talent shortages will impede growth

As companies adjust to post-recovery conditions and look for growth, they are increasingly faced with adapting business strategies and the successful selection and execution of important initiatives. Strategic ambiguity is again the top career stress for CFOs, and finance organizations are heavily focused on influencing strategy and informing business decisions. Potential investment and execution missteps are now among CFOs’ top worries.

Companies also appear increasingly concerned that the government will impede their progress. In 3Q10 (the last time we asked about CFOs’ most worrisome risks), CFOs were most worried about further economic turmoil (a “double-dip”) with detrimental government policy a distant second. The order reversed this quarter with increased and unexpected regulatory changes becoming CFOs’ most pressing risk.

Regulatory factors are now both a top industry-level concern and a top CFO career-level concern.As global economies continue to recover and competition for resources intensifies, inflation and rising commodity prices are becoming bigger concerns (input price expectations jumped markedly this quarter). CFOs are also increasingly worried about attracting and retaining the talent necessary to execute on growth strategies, with talent availability now a top company-and industry-level concern.

Growth Would Spur Investment, But Not Necessarily Jobs

Uncertainty around regulation and the economy makes fewer investment options attractive; even significant growth won’t cure unemployment

Despite their growth agendas, companies are wary of unleashing the more than $2T in collective balance-sheet cash that has remained on the sidelines since the recession. CFOs cite continuing concerns about the economy and consumer demand, concerns about industry regulation, and a shortage of attractive investment opportunities as the main reasons for constrained spending. Corporate tax and health care policy are not markedly impacting cash investments.

Companies are also cautious around hiring. In our 4Q10 survey, CFOs indicated they believed a structural shift in employment was taking place, implying that a return to normal revenue levels would not generate a return to normal employment levels. This quarter’s results support this assertion.

Seventy percent of CFOs say a five percent rise in revenue would have little or no impact on their hiring, and the rest say it would increase hiring only somewhat. Even a 10% gain in revenue (a notable dollar gain for a company already generating $1B+ in revenue) would substantially impact hiring for only about 10% of companies, and nearly one-third say it would have little or no impact. It’s only at a 20% revenue gain that 90% of CFOs say they would markedly elevate domestic hiring.

Given these findings, it is not surprising that CFOs’ current 8.2% projection for year-over-year sales growth is not translating into strong employment gains. Expected year-over-year gains in domestic hiring this quarter are just 1.8%, unchanged from last quarter.

CFOs say hiring could be jumpstarted at least somewhat by a lowering of corporate tax rates and the revision of labor contracts. Improved hiring incentives would not help much and, although CFOs are wary of health care reform (see the Economy section, page 20), they admit that its repeal would not substantially impact their own hiring.

Tax and Health Care Policies Burdensome

Industry-specific impediments abound, but tax and health care policies are CFOs’ most cited barriers to growth

To see if other regulations are adversely impacting growth, we asked CFOs which government rules place unnecessary burdens on their business. Although the top answers varied by industry, the common ground seems to be around taxes and health care reform.

CFOs regard current tax systems as burdensome, with most citing the high complexity of the tax code, excessive corporate tax rates, and taxes on repatriated earnings. Health care reform’s second place finish seems to indicate that, although CFOs believe the policy will not substantially impact investment or hiring, they do think it will add an implementation burden that will likely outweigh any business benefits.

Broadening and Deepening Roles for CFOs and Finance

Rapid and extensive change is raising the need for finance talent

As we head deeper into 2011, changing business environments continue to force companies to change strategies, select and launch initiatives, and manage a broad range of risks. In response, CFOs are playing a stronger role in each area. While they clearly have not ceded responsibility for their core functions, their defining roles now transcend operations and stewardship to include catalyzing growth and facilitating strategy.

CFOs’ broader roles are driving the need for new, highly-skilled finance talent, but the hiring challenges evident in the broader economy are particularly acute for finance organizations. One-third of the 45% of CFOs who are actively recruiting finance talent are having trouble filling open positions, and nearly 60% are taking new steps to keep key talent.

Optimism and Opportunism

Companies and CFOs are making the most of shifting opportunities

Conditions at home and abroad remain fluid as CFOs and their organizations work through structural changes already altering the business landscape. Since the conclusion of this quarter’s survey, political change across the Middle East has escalated and oil prices have risen sharply. And if the scope and evolution of CFO concerns in this survey over the past year is any indication, the rate of change is not slowing.

Despite persistent turmoil and uncertainty, the CFOs in this survey have been predominantly and consistently optimistic over the past year, heavily focused on driving the long-term effectiveness and efficiency of their finance organizations and broader companies. Our 4Q10 findings showed that half of CFOs claim a predominantly “driver” working style, which should serve them well as they continue to help their organizations assess business conditions, revisit strategic choices, and spearhead change.

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All participating CFOs have agreed to have their responses aggregated and presented. 

Please note that this is a “pulse survey” intended to provide CFOs with quarterly information regarding their CFO peers’ thinking across a variety of topics; it is not, nor is it intended to be, scientific in its number of respondents, selection of respondents, or response rate – especially within individual industries. Accordingly, this report summarizes findings for the surveyed population but does not necessarily indicate economy- or industry-wide perceptions or trends. Except where noted, we do not comment on findings for segments with fewer than ten respondents. Please see the appendix in the attachment for more information about survey methodology. 

This publication contains general information only and Deloitte is not, by means of this publication, rendering accounting, business, financial, investment, tax, legal, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decisions that may affect your business, you should consult a qualified professional advisor.

*All numbers with an asterisk are averages that have been adjusted to eliminate the effects of stark outliers.

As used in this document, “Deloitte” means Deloitte LLP [and its subsidiaries]. Please see for a detailed description of the legal structure of Deloitte LLP and its subsidiaries.

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