Deloitte's CFO Signals survey for the second quarter of chief financial officers, representing many of North America's largest and most influential companies, reveals strong optimism among CFOs' assessments of the North American and Chinese economies' current performance, while their expectations for Europe's economy declined.
Ninety-four percent of CFOs rated current conditions of North America's economy as good, a new survey high, and 52 percent expect better conditions in a year, down from 59 percent last quarter.
Perceptions of Europe's current state and trajectory hit new survey highs over the last two quarters, but receded this quarter, with 47 percent saying current conditions are good, down from 55 percent last quarter, and 36 percent expecting better conditions in a year, down significantly from 51 percent. Fifty-five percent of CFOs say current conditions in China are good, up from 50 percent, and 31 percent anticipate better conditions a year from now, down from 37 percent.
After hitting a new survey high of +54 in the first quarter of 2018, the net optimism index regarding own-company prospects declined to +39 this quarter—significantly down, but still strong by historical standards. Forty-eight percent expressed rising optimism, down from 60 percent in the previous quarter, and 9 percent cited declining optimism, up from 6 percent in Q1 2018.
Additionally, despite higher recent volatility in U.S. equity markets, CFOs were less likely to say markets are overvalued in the new survey, at 63 percent, down from last quarter's 76 percent and well below the above-80-percent levels from late 2017.
“Last quarter’s positive sentiment largely continued this quarter. Although own-company optimism and expectations for the European economy faltered a bit, CFOs’ confidence in U.S. equity markets appears to have strengthened slightly. In addition, perceptions of North America improved, hitting a new survey high,” said Sanford Cockrell III, national managing partner of the US CFO Program, Deloitte LLP.
After hitting multi-year highs last quarter, key business outlook metrics continued to climb this quarter. Expectations for revenue growth rose from 5.9 percent to 6.3 percent, its highest level in nearly four years; earnings growth expectations rose from 9.8 percent to 10.3, a three-year high; expectations for capital investment declined from 11.0 percent to 10.4 percent, but remains at one of the highest levels in the last six years. Lastly, CFOs' expectations for increasing domestic personnel rose from 3.1 percent to 3.2 percent, a new survey high.
Regarding business focus for the next year, CFOs indicate bias toward revenue growth over cost reduction (67 percent vs. 17 percent), a survey high, and the bias toward investing cash over returning it which remained among its recent highs (56 percent vs. 18 percent). Their bias toward new offerings over current ones grew this quarter (40 percent vs. 35 percent), and their bias toward current geographies over new ones increased slightly (59 percent vs. 16 percent). Maybe most interesting of all, the recent strong bias toward organic growth over inorganic growth continued this quarter and reached a new survey high (67 percent vs. 17 percent).
With global economic performance improving over the last several quarters, CFOs' worries have shifted toward their companies' ability to capitalize on opportunities and potential threats to continued economic performance. This quarter, CFOs voiced continuing external concerns about US political turmoil and policy uncertainty, particularly around trade policy. Regarding internal risks, talent concerns again top CFOs' lists, especially around talent acquisition, quality and retention.
To understand the evolution of the CFO role, this quarter's survey asked CFOs a series of questions about their scope of responsibility, the roles they brought to their current positions, and the experiences most important for their successors. Many CFOs appear to be taking on broader responsibility for business planning, IT and data, and risk. It also appears CFOs' backgrounds are changing, as most CFOs were likely to report having a prior role as business unit CFO, or a controller, or a role in FP&A or corporate finance—with more than 40 percent reporting each. Younger CFOs however, were comparatively more likely to cite investor relations and strategy roles. Aside from technical finance experience, just over 60 percent of surveyed CFOs rated corporate strategy and investor relations experience among the top experiences that will be important for their successor.
“Past quarters have shown that as megatrends such as data proliferation, analytics, and automation have put intense pressure on companies' strategies and operations, the role of the CFO has been changing. Where a substantial understanding of IT used to be a nice-to-have for CFOs, it now seems to be an imperative for their expanding responsibilities,” said Greg Dickinson, managing director, Deloitte LLP, who leads the North American CFO Signals survey.
To see additional results from Deloitte's second-quarter 2018 CFO Signals survey, download a copy.