A new survey by TD Bank reveals that middle market CFOs, buoyed by increasing optimism fueled by sales growth, are prepared to increase capital expenditures by dipping into their stockpile of cash reserves.

According to the TD Bank survey, three-quarters of financial decision-makers at mid-sized companies say they expect sales to increase over the next 12 months despite lingering economic headwinds, with half (51%) expecting to increase their capital expenditures in 2012, up from 39% last year.

"The survey results reinforce what we've been seeing and hearing at the client level," said Walter Owens, Head of Specialty and Corporate Banking at TD Bank. "Middle market companies, much like their larger brethren, have hoarded cash since late 2008, with the expectation that worse days were ahead. Now with interest rates at record lows and the Fed promising to stay the course through 2012 into 2013, the negative headwinds are abating and companies are making strategic capital investments so that they emerge stronger."

Despite persisting economic headaches across the globe, about two-thirds of financial executives said their company's sales increased over the past 12 months (66%), including 29% who saw increases of 10% or more. This exceeded the expectations for 2011 from last year's survey, when 58% or respondents expected their sales to increase and a quarter expected sales to increase by 10 percent or more.
 
Looking ahead to the next 12 months:

• 75% expect sales to increase

• 27% expect an increase of 10% or more
 
• 9% expect a decrease in sales

While middle market executives are more confident in the prospects for their own companies, they're not as sure about the prospects for the U.S. economy in 2012. The survey revealed a near-even split amongst CFOs who are more optimistic about economic performance in 2012 than they were in 2011 (35%), those who are less optimistic (35%) and those who are neutral (31%).  

"There are certainly still challenges to be met in 2012 and beyond, but I believe cautious business optimism is warranted," said Fred Graziano, Head of Regional Commercial Banking and Government & Small Business Banking at TD Bank. "Within our footprint, we're seeing customers capitalize on the low interest rate environment by expanding their businesses, and those who exercised prudence during the volatility are well-positioned to win market share."

As companies steeled for a double-dip recession that never materialized, 54.5% of executives said they stockpiled at least a modest amount of cash to mitigate any risk of a downturn. Now about half are ready to put some of that capital to work.  

According to the survey, top areas of expected capital deployment include:

• Technology (40%)

• Improvements to existing facilities (17%)

• Construction of new facilities (12%)

• Hiring and workforce development (12%)

• Heavy and office equipment (12%)

• Green' or energy efficient projects (4%)

Aside from the overall economic climate, cash flow, margins and revenue are expected to be the biggest impediments to making capital investments over the next 12 months (43%), followed by the political climate, regulation and government policy (25%), sufficient funding (11%), expenses (6%) and having enough trained staff (6%).
 
The 'jobless recovery' continues to concern CFOs, with lack of job growth (20%) topping the list of problematic external factors, for its potential impact on their company finances.
 
Other external concerns include:

• Strengthened competitors and industry mergers and acquisitions (16%)

• Rising commodity prices (15%)
 
• Monetary policy (10%)

• Sovereign debt crises (9%)

• Interest rate volatility (8%)

As a hedge against a possible continued lull in the economy, businesses are most likely to reduce expenses (34%), followed by investing in new business lines (14%), freezing hiring (10%), freezing wages (9%), paying down debt (8%) and increasing liquidity or cash reserves (7%).  Only 5% are most likely to use layoffs as a hedge against continued economy problems. Financial decision makers may also recognize the impact a sluggish economy could have on their own career paths: a whopping 94% of CFOs surveyed said they plan to stay with their current employer in 2012.

About TD Bank's Survey

TD Bank polled business executives in the Northeast and Mid-Atlantic states and Florida to understand their companies' current financial health, as well as their thoughts on the overall economy and their future business plans and expectations. The survey was conducted in October 2011 by ORC International, and surveyed a total of 200 executives at companies with annual sales of $25 million to $250 million. More than two-thirds of respondents were CFOs or held similar titles, including comptroller, treasurer or director of finance. The remainder were executives who have at least some influence over financial decisions at their companies.