Daily News: August 14, 2012

Private Company Optimism, Forecasts Dip as Uncertainty Persists

In the second quarter of 2012, half of leading private companies were optimistic about the U.S. economy, few were pessimistic (12%), and a fair number remained uncertain (38%), according to PwC US’s Private Company Trendsetter Barometer. The biggest movement between the first and second quarters was in the percentage of Trendsetter executives reporting optimism about the U.S. economy, down ten points. The percentage of Trendsetter executives voicing uncertainty and pessimism, meanwhile, rose slightly, by 6 and 4 points respectively.

Among Trendsetter companies that sell abroad, 23% were optimistic about the world economy, while the same percentage (23%) registered pessimism. Uncertainty was the predominant sentiment expressed by private businesses selling internationally, with over half (54%) of international companies taking that view.

“Continued fluctuation in private-company optimism is to be expected while the US economic recovery remains slow and the Eurozone unsettled,” said Ken Esch, a partner with PwC’s Private Company Services practice. “This up-and-down movement in Trendsetter confidence has been a consistent pattern over the past several years and signals a prevailing sense of uncertainty. It may take a few consecutive quarters of sustained high confidence before private companies feel they’ve truly turned a corner and are ready to pursue growth more aggressively.”

Domestic Companies Cut Back on Revenue Targets But Still Expect Growth

Trendsetter executives revised their 12-month revenue-growth forecasts downward from 9.5% to 8.3%. Estimated growth for calendar year 2012 was notably higher than forecasted 12-month growth – 10% versus 8.3%. Nonetheless, most private companies (86%) do expect positive revenue growth over the next 12 months, with 33% forecasting double-digit growth and 53% forecasting single-digit growth.

Notably, the decrease in forecasted revenue growth is attributable solely to Trendsetter companies that do not sell outside the United States. Their projected revenue growth dropped to 6.9%, whereas Trendsetter companies that sell internationally projected 9.7% growth. For companies selling in China, India and Brazil, the growth rate was even higher, at 11.3%. However, the expected 12-month contribution of international sales to total revenue for companies selling abroad declined slightly for the second quarter, dropping from 21% to 18%.

Slight Uptick in Hiring

The majority of private companies (54%) plan to add to their workforce over the next 12 months. Only 3% plan net layoffs and 43% expect their workforce to stay about the same. Overall, Trendsetter companies project a 2.4% increase in their headcount, up from 1.8% in the first quarter.

Decreasing Margins a Barrier to Growth

Similar to the beginning of the year, this past quarter the leading headwinds that Trendsetter executives cited for the next 12 months were concern about demand (cited by 68% of respondents), legislative/regulatory pressures (48%), and decreasing margins (31%). Concern about increased taxation (28%) dropped from the previous quarter. So did concern about oil/energy prices (29%). Indeed, costs and prices overall were moderately lower. Costs were higher for 17% of Trendsetter companies and lower for 13%, for a net 4% with higher costs. Prices, meanwhile, were higher for 16%, lower for 10%, for a net 6% of Trendsetter companies with higher prices.

Bank Loans Remain Static

Limited lending activity was once again reported in the second quarter of 2012, with only 7% of Trendsetter companies reporting financing activity – 8% by domestic-only firms and 6% by international companies. Six percent of companies reported new loans from banks.

To read the PwC report in its entirety, click here.

PwC’s Private Company Trendsetter Barometer tracks the business issues and best practices of privately held U.S. growth businesses. It incorporates the views of 243 chief executive officers (CEOs/CFOs): 134 from companies in the product sector and 109 in the service sector, averaging $333 million in enterprise revenue/sales, and including large, $500,000-plus private companies.