May/June 2015

2015 CFO Outlook: Economic Momentum Driving CFO Confidence Higher

In-depth data gathered from Bank of America Merrill Lynch’s annual survey indicates that the U.S. economy may be on the verge of a breakthrough. If these projections for revenue and employment growth are on track, it could be the best year for business since 2007.



economic-ratings

Economic Views—Strengthening Optimism

Q. How would you rate the current state of the US economy and the world economy?


CFOs are most optimistic about the U.S. economy than at any point in the past six years. Positive sentiment is nearing pre-recession highs and most of last year’s major concerns have abated significantly—spurring companies to formulate more aggressive growth plans. U.S. economic ratings are nearing pre-recession highs, while global ratings are holding steady.

Q. In 2105, do you think the US economy will expand, contract or stay the same?


A majority of CFOs say the U.S. economy will expand in 2015, 33% higher than just two years ago.

Q. How would you rate your level of concern about the U.S. economy in 2015?


Nearly all U.S. economic concerns—including healthcare costs, effectiveness of US government, global conflict, U.S. regulatory environment, U.S. budget deficit, consumer confidence, corporate tax rates, interest rates and US employment levels—are significantly lower than last year.

Growth Strategies and Tactics—Anticipating Rising Revenue


As economic confidence rises, most companies foresee sales growth and rising profit margins for 2015. Ninety-six percent of CFOs expect to pursue one or more growth strategies and nearly half plan to reinvest in their businesses through capital expenditure.

Q. Compared to 2014, will your 2015 sales be higher, lower or about the same? What percentage of sales growth are you expecting in 2015?


Sixty-three percent of CFOs forecast sales growth in 2015, compared to just 54% last year. Most companies expect to grow between 1% – 10% in 2015.

FIGURE 1: Growth Expectations -- Percent of CFOs responding

FIGURE 1: Growth Expectations — Percent of CFOs responding

Q. Do you expect your company’s profit margin to increase, decrease or stay the same in 2015?


Forty-one percent of CFOs expect rising profit margins in the coming year.

Q. In 2015, are you going to increase, decrease or hold constant the percentage allocations of free cash flow to capital expenditures?


Boosting capital expenditures is a priority for 46% of CFOs—up 35% from last year.

Q. In general, where is your company expecting to grow in 2015?


Most CFOs expect to grow exclusively in the U.S.

Q. Will your company implement the growth strategies of market penetration, market expansion, introduction of new products, merger or acquisition to meet its 2015 objectives?


Most mid-sized firms plan to grow through market penetration and market expansion.

Q. Is the time you spend on activities beyond your traditional financial duties increasing, decreasing or staying the same?


CFOs are taking on new strategic responsibilities beyond their traditional financial duties, such as technological advances, risk management, data management, human resources issues, communications and strategies, corporate social responsibility and global initiatives.

Human Capital—Investing in Talent


Companies plan to ramp up growth by hiring new employees and offering compelling benefits to attract and retain them. As the Affordable Care Act takes effect, compliance costs are becoming clear to CFOs, which makes it easier to plan for a growing employee base.

Q. What best describes your company’s employment of full-time workers in 2015?


Fifty-two percent of CFOs expect to hire new full-time employees in 2015.

Q. Which programs does your company use to attract or retain qualified employees?


Companies are offering a range of benefits to support employees’ personal and financial health including healthcare insurance, retirement funding, bonuses, wellness programs, education funding, flexible work hours and employee financial counseling.

Q. Do you anticipate that your labor costs will increase in order for your company to be ACA-compliant?


More companies expect labor costs to rise due to ACA compliance, but by a smaller amount than last year.

Q. How is your company planning to take to offset its long-term healthcare costs?


Although most companies plan to pass rising healthcare costs back to employees, many are also sharing the burden.

International Trade—Overcoming Uncertainties


CFOs remain committed to doing business in foreign countries. More than half of respondents already have or plan to launch international initiatives, and many do business in two or more regions.

Q. Does your company currently sell to, buy from or have operations in foreign markets?


Fifty-four percent of companies by from, sell to or operate in a foreign country, or plan to begin doing so.

Q. Does your company currently have foreign operations Europe, Asia, Latin America, Middle East or Africa?


Most companies with foreign operations are doing business in two or more regions. Latin America is gaining popularity among companies planning to establish or expand foreign operations in 2015.

FIGURE 2: International Regions -- Percent of CFOs who operate in...

FIGURE 2: International Regions — Percent of CFOs who operate in…

Q. Are you pursuing international expansion by setting up an in-market subsidiary, participating in a joint venture or making a merger or acquisition?


In-market subsidiaries are the most popular vehicle for international expansion.

Risk Management—Identifying New Opportunities


Dynamic market conditions, complex regulations and new technologies have spurred many companies to take a more thorough look at risks. Most CFOs report having plans for major scenarios, potential vulnerabilities still exist.

Q. Does your company have a plan in place to address the risks of data security, disaster recovery, fraud, operational risk, succession planning or international business risk?


Most companies have plans for data security, disaster recovery, fraud and operational risks. Succession planning and market risk are potential weak spots, since many companies haven’t planned for these scenarios. Most companies that operate internationally don’t have an international risk plan.

Editor’s Note: The foregoing was edited for presentation purposes. The full report is available at www.bankofamerica.com/cfooutlook/2015.

ABOUT THE 2014 CFO OUTLOOK


Who Participated & How Results Were Gathered

The 2015 CFO Outlook reflects insights gathered by Granite Research consulting, which conducted 602 interviews with U.S. financial executives—primarily CFOs—between September 8, 2014 and October 31, 2014. Survey participants represent a cross section of American companies and regions.