CFO Outlook: Company Growth Anticipated
CFOs believe the U.S. economy is at its highest level since the 2008 recession and anticipate growth in their sales, workforce and companies in 2015, according to the Bank of America Merrill Lynch 2015 CFO Outlook survey.
In the survey of 603 financial executives with annual revenues ranging from $25 million to $2 billion, a majority of CFOs report the outlook for their companies as increasingly positive. Important findings include:
The U.S. Economy
On a 100-point index, with zero being extremely weak and 100 being extremely strong, CFOs give the U.S. economy an average score of 59, a marked increase from the 53 reported in the 2014 CFO Outlook and the highest level since the recession in 2008.
CFOs report that they are more optimistic that the economy will expand in 2015 than they have been in the past four years. Fifty-two % forecast expansion next year (vs. 4 % for 2014) and another 37% expect the economy to remain stable.
When CFOs were asked to evaluate certain factors in terms of their potential impact on the U.S. economy in 2015, healthcare costs were most cited (56%), which is down considerably from 2014 (67%). New to the survey this year, 45 percent of CFOs express concerns about the effects of global conflict on the U.S. economy. Notably, companies with no foreign market involvement are more likely to be concerned with this issue (50%), while companies with foreign operations are less concerned (40%).
For the first time in seven years, more than half (52%) of CFOs report they expect to hire additional full-time employees in 2015; 44% have no plans to change the size of their workforce.
CFOs report their companies are investing in retaining and attracting qualified employees by providing benefits, including 96 % offering healthcare insurance; 92 % funding retirement programs; and 87 % offering bonuses or other compensation. More than half also offer wellness programs (63%), education funding (54%) and flexible work hours (52%).
Sales growth is expected by 63% of CFOs in 2015, up significantly from 54% for 2014. Sixty-three percent of companies surveyed expect to grow exclusively in the U.S.; the remaining 37% anticipate both domestic and international growth.
To encourage and foster growth, 96% of U.S. companies are implementing one or more of the growth strategies presented in the survey; market penetration (82%) and market expansion (74%) are the most popular strategies. Forty-one percent expect their profit margins to increase, and 45% believe they will remain the same.
Overall, 54% of companies have some foreign market involvement. The top two regions in which U.S. manufacturers currently have foreign operations are Europe (70%) and Asia (69%), but manufacturers are looking to establish new operations in Latin America (16%), Asia (15%) and Europe (14%). U.S. manufacturers are most likely to grow internationally by setting up an in-market subsidiary (50%), while non-manufacturing companies will likely participate in a joint venture (48%).
“With a steadily improving economy as a backdrop, growth is top of mind for CFOs in 2015,” said Alastair Borthwick, head of Global Commercial Banking at Bank of America Merrill Lynch. “Companies are moving from maintaining their position to growing in earnest by hiring new employees and taking steps to expand.”
CFOs overwhelmingly feel optimistic about their companies in 2015. Seventy-four percent report a positive outlook, while another 18% view their company’s outlook as stable.
Healthcare and Benefits
Sixty-nine percent of companies report that they expect their labor costs to rise to cover the costs associated with the Affordable Care Act, up from 53% last year. In order to offset their long-term healthcare costs, companies will pass along these costs to employees (79%), implement preventative healthcare and wellness programs (66%), cut spending in other areas of their business (61%), offer employees health savings accounts (HSA) (59%) and raise prices on their products and services (50%).
The majority of companies surveyed indicated that they have plans in place to mitigate risks they face. The most common risk management programs address data security (92%), disaster coverage/protection (88%), other types of fraud (83%) and operational risk (81%). Approximately two-thirds of companies have plans in place to address succession planning, technical/intellectual property protection and reputational risk.
Evolving Role of the CFO
The role of the CFO is evolving from primarily financial to a more holistic view of the company according to a new segment of the survey this year. More than half (52%) of CFOs report that the time they spend on strategic issues is increasing. Currently, they spend two-thirds of their time on tactical activities and one-third on strategic activities.
The specific strategic activities on which CFOs spend the most time are: technological advances (61%), risk management (60%) and data management (59%). Also mentioned were human resources issues (49%) and communications strategies (40%).
“Results from the survey confirm what we have seen with our clients,” Borthwick said. “CFOs expect to dedicate more time to activities aligned with growing and protecting their companies. From sales to risk management, healthcare costs to employee retention programs, they are leveraging their broad base of knowledge to influence decisions across their company.”