our 2013 CFO Outlook.

Transcription

1 2013 CFO Outlook Annual Survey of U.S. Senior Financial Executives Forward Focus Will the post-election landscape create a path for growth? How will CFOs lead their businesses forward? See what s ahead in our 2013 CFO Outlook. 3 introduction 5 economies and sectors 7 performance and people 10 strategy and finance 13 international trade 15 survey demographics

2 Contents 3 Introduction Executive letter and top findings 5 ECONOMIES AND SECTORS Middle ground for economic optimism 7 PERFORMANCE AND PEOPLE Corporate performance remains on path 10 Caution prevails 13 INTERNATIONAL TRADE U.S. companies cover more ground 15 SURVEY DEMOGRAPHICS Representing America s financial decision-makers 2013 CFO OUTLOOK bankofamerica.com/cfooutlook 2

3 Introduction Raising new possibilities Sharing insights to help companies take action Businesses benefit most from knowledge that s both credible and actionable. It s especially important now, as corporate leaders look for signs of sustained economic recovery to embolden strategies that drive meaningful innovation and growth. Through our annual CFO Outlook study, we gain insight into what U.S. financial executives are thinking and planning for the months ahead. Assessing their collective views of the economy, sectors, their own corporate performance, and other potential activities in 2013, it s clear that most are proceeding with cautious optimism. An important part of sponsoring this study as well as the full breadth of thought leadership produced by our experts worldwide is our commitment to providing hands-on guidance. At Bank of America Merrill Lynch, we collaborate with our clients and each other every day, across all regions and disciplines. By aggregating ideas and skillsets, and drawing on our complete range of capabilities, we help clients gain access to expertise that helps them pursue their most important objectives. For deeper commentary on the 2013 CFO Outlook results, we invite you to view the set of videos at bankofamerica.com/cfooutlook or contact us anytime. Alastair Borthwick Head of Global Commercial Banking Bank of America Merrill Lynch 2013 CFO OUTLOOK bankofamerica.com/cfooutlook 3

4 2013 CFO Outlook Top Findings Assessing the economy, trends and prospects for growth. Middle ground for economic optimism CFO ratings of U.S. and global economies on a 100-point scale Corporate performance stays solid Percent of CFOs predicting year-over-year increases 2012 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC JAN % 56% % 45% 41% 40% Percent of CFOs citing healthcare cost as a key: REVENUE HIRING PROFITS More expect less from U.S. economy Percent of CFOs expecting economic contraction % % Healthcare causing pain Rising costs elicit both economic and company financial concern Economic concern Other key economic concerns: U.S. government effectiveness 64% U.S. budget deficit 63% 62% 58% Company financial concern Other key company financial concerns: Revenue growth 43% Cash flow 34% 2013 CFO OUTLOOK bankofamerica.com/cfooutlook 4

5 Economies and Sectors Middle ground for economic optimism A wait and see approach Q: How would you rate the current state of the U.S. economy, the world economy, and the manufacturing and services sectors? At the midway point CFOs rated the U.S. economy halfway between extremely strong and extremely weak, giving it a score of 49 out of 100. The rating is five points higher than it was a year ago, but four points lower than in the fall of The likely reality is that while financial executives haven t seen enough positive indicators to sustain growing optimism, they continue to take a wait and see approach as the 2008 financial crisis grows more distant. By comparison, the highest U.S. economic rating in the 15-year history of this study was 67 in 2007, and the lowest was 44 in 2010 and again in Current views of the global economy are even more critical. With an average rating of 45 identical to last fall and two points higher year over year concerns clearly remain about the economic, political and military crises that plague the international community. Sector views upbeat The U.S. services sector was rated 59, three points higher than at the onset of Similarly, CFOs rated manufacturing a 53, up three points year over year CFO OUTLOOK bankofamerica.com/cfooutlook 5

6 39% predict the U.S. economy will expand in Q: Do you think the U.S. economy will expand, contract or stay the same More expect less While 39% of CFOs are optimistic that the U.S. economy will expand, 24% now predict economic contraction in the year ahead, compared to 11% in 2012 and 6% the previous year. The percentage of CFOs who expect the economy to stay the same is now 36%, compared to 49% in TREND SPOTTING: Economies and Sectors Interesting facts by segment or industry Q: How would you rate your concern about the potential impact these factors will have on the U.S. economy Diminishing concerns The concerns CFOs express about the U.S. economy have decreased in number and severity since Like last year, their three leading concerns are: effectiveness of the U.S. government (64%), the U.S. budget deficit (63%) and healthcare costs (62%). Concern has lessened considerably when it comes to unemployment (43%), consumer confidence (41%) and energy costs (34%). The most improved factor is the U.S. housing market, which was cited as a chief economic concern by only 20% of CFOs, compared to 44% at the onset of y Service comes first: The U.S. services sector was viewed positively across all industries, regions, sales sizes and company types; companies planning to hire rated the sector highest at 62 out of 100. y Expecting economic growth: Corporations that most expect U.S. economic growth are ones that: hire permanent employees (49%); are located in the West (48%); have international sales/operations representing less than 10% of total revenue (45%); and sell primarily to consumers (44%). y Most economic concern: Small companies with sales between $25 million and $74 million are more concerned about nearly all key economic issues than other segments, particularly healthcare costs (66%). y Impact of foreign market involvement: U.S. companies that do not buy from or sell to foreign markets or have operations overseas are significantly more concerned about the U.S. budget deficit (69%), healthcare costs (69%), U.S. regulatory environment (56%), energy costs (42%) and the strength of the U.S. dollar (37%), compared to those that do CFO OUTLOOK bankofamerica.com/cfooutlook 6

7 Performance and People Corporate performance remains on path Steady predictions for revenues, profits and hiring Q: Do you expect your company s revenues to grow, contract or stay the same Anticipating growth Similar to 2012, 56% of CFOs expect their company s revenues to increase and 34% think they will stay the same. While only 10% expect revenues to fall, that s 4 percentage points higher than 2012, which may be a reflection of diminished economic optimism. Q: Do you expect your company s profit margin to increase, decrease or stay the same Projecting profits For the second consecutive year, four in 10 CFOs expect profit increases. However, 22% predict a less profitable year, compared to 15% previously, while 37% expect flat profits, down from 44% in CFO OUTLOOK bankofamerica.com/cfooutlook 7

8 Q: Do you expect your company s product pricing to increase, decrease or stay the same Price match The 2013 pricing strategy of U.S. companies is virtually identical to Similar to last year, half of the companies intend to charge more for what they sell, 43% expect the same prices and 6% say they will lower prices. This status quo approach is likely connected to prevailing views of the economy and corporate performance. Q: Which of the following best describes your company s level of capital expenditures in 2013? Expense conscious Only 32% of U.S. companies plan to increase their capital expenditures in order to maintain or increase the scope of their operations, which is on par with last year. The remaining companies are taking a more conservative approach by keeping their capital expenditures steady (38%), spending less (21%) or avoiding capital expenses (8%). Q: Which best describes your company s employment plans for 2013? A growing U.S. workforce Like their pricing strategies, steady corporate employment plans appear to correlate with performance expectations. As a result, the nation s employment picture may continue to improve, as 45% of companies are planning to hire either permanent or contract employees in Likewise, previous gains should hold, as 48% anticipate steady employment levels, while only 8% are expecting layoffs. The primary reasons cited for not hiring include weak demand, uncertainties about healthcare costs and worries about the economy. Q: Will your company s 2013 R&D expenses be higher, lower or about the same as 2012? Investing in R&D Assuming that research and development is a barometer of future growth, it s promising that 72% of CFOs report a steady outlook for R&D expenses in 2013 and 20% forecast a year-over-year increase. Only 7% plan to reduce R&D spending CFO OUTLOOK bankofamerica.com/cfooutlook 8

9 Q: Do you expect your labor cost per unit to increase, decrease or stay the same Costly labor Potentially connected to concern over rising healthcare costs, 72% of CFOs expect to pay more for labor in This is up from 58% reported the previous two years. Of the remaining companies, 24% say labor costs will remain the same and only 3% are forecasting decreases. Q: What are the most significant financial concerns about your company? Healthcare causing pain As new laws begin to take effect, CFOs cite healthcare costs (58%) as their chief concern for the third consecutive year. Concern diminished, however, across most other factors. Revenue growth was a distant second at 43%, followed by cash flow (34%), corporate tax rates (34%), energy costs (31%) and consumer confidence (30%). New to the survey this year, 26% of U.S. companies express concern over the availability of qualified labor. 45% anticipate more hiring. TREND SPOTTING: Performance and People Interesting facts by segment or industry y Projecting higher revenues: Corporations that are hiring additional employees (74%) and those forecasting increases in their foreign market sales (70%) are most optimistic about rising revenues. y Greater profitability: Corporations that are hiring additional employees (52%), those planning M&A activity (48%) and companies forecasting higher foreign market sales (47%) are among those most likely to predict higher profits. y Increasing prices: Service companies (57%) are significantly more likely to raise prices than manufacturers (44%). y Hiring power: Public companies (53%) are significantly more likely to expand their workforce in 2013 compared to private companies (43%). y Costly labor: Manufacturers (80%) are significantly more likely than service companies (62%) to forecast rising labor costs in CFO OUTLOOK bankofamerica.com/cfooutlook 9

10 Strategy and Finance Caution prevails Companies stay the course Q: Does your company plan to participate in any mergers or acquisitions Few urge to merge In keeping with the M&A slowdown in recent years, 72% of CFOs say they have no merger or acquisition plans this year. Only 22% anticipate M&A activity, up 4 percentage points from Q: Do you think the purchase price for companies today is lower than a year ago? Will it increase, decrease or stay the same Diverging opinions Responding to whether the current purchase price for companies is lower than a year ago, 53% say no, 38% say yes and 9% aren t sure. CFOs are similarly divided when it comes to predicting purchase prices in 2013, with 34% anticipating an increase, 18% a decrease and 43% no change CFO OUTLOOK bankofamerica.com/cfooutlook 10

11 Q: Will your company s borrowing needs increase, decrease or stay the same Balanced borrowing outlook Most U.S. companies (65%) expect their borrowing needs to remain the same as last year. Of the remaining companies, 17% report that their borrowing needs will increase and 17% plan to borrow less. Of those planning to borrow, the leading need is working capital requirements (42%), followed by financing a merger and/or acquisition (34%) and geographic expansion (34%). Primary reasons to reduce borrowing include uncertainty about the sustainability of the economic recovery (30%), concern about future taxes and government regulation (29%), and excess capacity (28%). Q: Which of the following best describes your company s investment objectives over the next six months? Conservative investing Amid ongoing caution about the economy, more than two-thirds say they plan to invest very conservatively in the short term. Specifically, 43% are accepting moderately lower returns by reducing the term of the investment and/or selecting less risky assets, while 28% are accepting significantly lower returns by reducing term and/or choosing less risky assets. Only 21% are choosing riskier assets or conditions in order to achieve higher yields on their investments. Q: Do you expect your financing cost of capital to increase, decrease or stay the same Steady pricing Seventy-one percent of CFOs expect financing costs to remain flat in Of the remainder, 19% expect higher financing costs and 9% anticipate a decrease CFO OUTLOOK bankofamerica.com/cfooutlook 11

12 Q: Which of the following three investment types will you most likely use for your excess liquidity Liquidity management In keeping with their conservative approach in 2013, the most cited investment vehicles for excess liquidity are investment sweeps (22%), money market mutual funds (20%) and demand deposit accounts (19%). Rather than investing excess liquidity, 32% report they will use it to pay down debt. TREND SPOTTING: Strategy and Finance Interesting facts by segment or industry y M&A focused: The most likely M&A participants are large companies with revenues between $500 million and $2 billion (43%), publicly owned companies (34%), those that derive 25% or more of their revenues from international activity (34%) and those that have operations in foreign countries (33%). y Projecting M&A price increases: Companies positioning themselves for future growth by hiring permanent employees (46%) or increasing R&D spending (42%). y Anticipating higher financing costs: Corporations that are hiring additional contract employees (26%), those expecting decreased sales to foreign markets (25%), those selling primarily to consumers (24%), and small companies with sales between $25 million and $74 million (22%). y Seeking higher yields: Companies that are most aggressive in their short-term investing are those planning M&A activity (32%), anticipating higher R&D expenses (29%), having operations in foreign countries (27%), and hiring additional employees (25%). 22% anticipate M&A activity in CFO OUTLOOK bankofamerica.com/cfooutlook 12

13 International Trade U.S. companies cover more ground Foreign markets are familiar territory Q: Do you sell to, buy from, or have operations in foreign countries? One world U.S. companies are covering more ground to compete in the global marketplace. The majority of U.S. companies surveyed (73%) do business internationally. Among those that do, 62% buy from foreign markets, 55% sell to foreign markets and 30% have foreign operations. Only 27% have no foreign involvement. Q: Will your sales to foreign markets increase, decrease or stay the same Global sales warming Fifty-three percent of companies that sell to or have operations in foreign countries are expecting their international sales to increase. Of the remaining companies, 38% think their sales to foreign markets will stay the same and 8% expect a decrease CFO OUTLOOK bankofamerica.com/cfooutlook 13

14 Q: What percentage of your company s revenues do you expect to come from international sales or operations Room to grow Among all U.S. companies doing business internationally, 42% report that less than 10% of their company s revenues come from their international sales or operations. Of the remaining companies, 43% generate between 11% and 49% of their revenues internationally, and 13% say that international sales or operations produce 50% or more of their total revenues. TREND SPOTTING: International Trade Interesting facts by segment or industry y Most active in international trade: Manufacturers (91%), companies selling primarily to businesses (82%), those with sales of $200 million or more (80%), and public corporations (79%). y Projecting above-average international sales: Companies planning to spend more on R&D (74%), whose international sales/operations make up 25% or more of their total revenues (70%), those with revenues between $500 million and $2 billion (65%), and companies that are hiring (65%). y Highest international revenues: Public corporations (20%) and companies with sales between $200 million and $499 million (21%) are most likely to generate 50% or more of their revenues internationally CFO OUTLOOK bankofamerica.com/cfooutlook 14

15 Survey Demographics Representing America s financial decision-makers A cross section of companies and regions Ownership Sales Products U.S. Region* Gender Middle Market Privately owned 76% Publicly owned 21% Majority privately owned with some public debt 2% $25 million to less than $75 million 58% $75 million to less than $200 million 24% $200 million to less than $500 million 9% $500 million to less than $2 billion 9% Consumer goods 20% Business goods 73% Both consumer/business goods 7% South 30% Midwest 33% Northeast 23% West 15% Male 85% Female 15% *U.S. Region: South: Alabama, Arkansas, Delaware, District of Columbia, Florida, Georgia, Kentucky, Louisiana, Maryland, Mississippi, North Carolina, Oklahoma, South Carolina, Tennessee, Texas, Virginia, West Virginia Midwest: Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Dakota, Wisconsin Northeast: Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Vermont West: Alaska, Arizona, California, Colorado, Hawaii, Idaho, Montana, Nevada, New Mexico, Oregon, Utah, Washington, Wyoming 2013 CFO OUTLOOK bankofamerica.com/cfooutlook 15

16 About the 2013 CFO Outlook Who participated and how results were gathered Following the U.S. elections in November 2012, Granite Research Consulting completed 602 interviews with financial executives from U.S. companies with annual revenues between $25 million and $2 billion. The survey period began on November 7, 2012, and ended on January 18, The statistical range of error for this sample is plus or minus 4%. Participants are referred to as CFOs throughout the report since more than 45% of those surveyed have C-suite titles and most are CFOs. The survey results and interpretations in this report are not intended, nor implied, to be a substitute for the professional advice you would receive from a qualified accountant, attorney or financial advisor. Always seek the advice of an accountant, attorney or financial advisor with any questions you may have regarding the decisions you undertake as a result of reviewing the information contained herein. Nothing in this report should be construed as either advice or legal opinion. Bank of America Merrill Lynch is the marketing name for the global banking and global markets businesses of Bank of America Corporation. Lending, derivatives, and other commercial banking activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., member FDIC. Securities, strategic advisory, and other investment banking activities are performed globally by investment banking affiliates of Bank of America Corporation ( Investment Banking Affiliates ), including, in the United States, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Merrill Lynch Professional Clearing Corp., all of which are registered broker-dealers and members of FINRA and SIPC, and, in other jurisdictions, by locally registered entities. Investment products offered by Investment Banking Affiliates: Are Not FDIC Insured May Lose Value Are Not Bank Guaranteed Bank of America Corporation