Finance executives at U.S. corporations remain optimistic about the next 12 months, as the large gains in the profits they expect balance out their concerns about energy cost rises and inflation. That’s the conclusion of the quarterly “CFO Outlook Survey” by Baruch College’s Zicklin School of Business and Financial Executives International, although the survey did detect a slight slippage in measurements of both optimism about U.S. economy, and optimism about their own companies, compared to last year’s fourth quarter.
FEI has now put the full report on its website.
CFO optimism about the economy dipped to 64.10 from 65.50 in the survey’s index rating, for example, while optimism about their own companies fell slightly, to 72.00 from 73.00.
“The theme of CFO survey responses continues to be one of caution; they are generally confident in their businesses but watchful of what’s ahead,” John Elliott, dean of Baruch’s business school said. “U.S. CFOs expressed modest declines in their optimism, while European sentiment continues to grow, narrowing the spread between the two regions.”
Double-Digit Profit, Capex Growth
The double-digit growth in net income and in capital spending across the entire survey, he said, illustrate that “CFOs across the U.S. and Europe are confident in the future of their businesses.”
Baruch and FEI noted that U.S. CFOs expect an average 22% increase in their net income and a 16% rise in capital spending, while their European counterparts were expecting 12% rises in net, and 15% in Capex.
The survey, done by email between April 5 and April 17, showed that CFOs hadn’t yet experienced wide impact from world events such as the Japanese earthquake, tsunami and nuclear-leak disasters and the political turmoil and the Mideast. But the inflation and energy concerns came through clearly.
The survey included 300 CFOs from the U.S., both from public and private companies in a broad range of industries and with a geographic spread. There were 96 Italian and 67 French questionnaires.
In the health care arena, CFOs in this country expected a 10% increase in costs over the next year, while European CFOs pegged the expected rise at 3%.
In the rating of issues by U.S. finance chiefs on a one-to-five scale, with five the highest concern level, 81% listed inflation in the top three (69% for the Europeans.) In terms of whether the concern level had increased since the 2010 Q4, 57% of American CFOs said yes (44% for the Europeans, with 48% saying the concern level was the same.)
U.S. executives said, on average, that they expected a 3.9% inflation level, while the European expectations averaged 2.5%.
More See the U.S. in Mid-Recovery
On recovery-related topics, 46% of U.S. finance chiefs saw the American economy as in the middle of a recovery, up from 28% saying that in the prior quarter’s survey. Nearly a third in the recent survey expect a recover by next year’s first half. While 59% supported the Fed’s decision to keep interest rates low, 32% said it was time to start increasing the rate. In the earlier quarter, 24% said rates should rise.
Asked about the Dodd-Frank Wall Street Reform and Consumer Protection Act, CFOs said they weren’t adding extra hours to prepare for reforms, but 70% of CFOs to whom the act applies said they allocated more resources to understanding it. CFOs most supported the provision that make credit rating firms liable for faulty initial ratings (23%) with support of whistleblower award programs not far behind (17%.)
Asked if they would support a temporary change in the law to allow repatriation of foreign earnings by American companies operating overseas, 85% said yes. But 55% said that repatriations should be part of a comprehensive corporate tax reform plan, with 35% saying the reform should be independent.
In other highlights, 70% of U.S. CFOs and 71% of European ones felt the price of oil would be at least $140 a barrel or higher in six months, although the large majority weren’t actively engaged in chaning behavior to reflect oil prices.
“Many of the events we’ve watched unford globally and localy have been both unprecendented and devastating,” said FEI President Marie Hollein, “but CFOs overall have not felt a strong impact on their balance sheets just yet, as it perhaps is too soon to determine their direct influlecne on the business community.”
She said that finance chiefs “will be closely eying macroeconomic issues like inflation and oil prices, which are being affected by these world events.” Even if they haven’t yet reacted, “it’s certainly on their minds and it will be critical to watch what, how and when companies respond in the coming months.”