Management Barometer is a quarterly survey
of top executives in large, U.S.-based multinational businesses.
135 CFOs and Managing Directors were interviewed about the
fourth-quarter business climate, through January 18, 2006.
NEW YORK, Feb. 27, 2006 (PRIMEZONE) -- Leaders of U.S.-based multinationals have turned increasingly optimistic about the economy's prospects, although half (51 percent) continue to see rising energy prices as a potential threat. Latest projections for revenue growth, major new investments, and hiring are strong -- showing solid increases over third quarter estimates. Gross margins remain positive.
Brighter domestic outlook: 79 percent of surveyed executives believe the U.S. economy is growing, and 70 percent are optimistic about its prospects over the next 12 months -- a 20-point bounce-back from the prior quarter's two catastrophic hurricanes, business interruptions, and spiraling energy prices. Today only 26 percent have an uncertain view of the economy, and four percent are pessimistic.
Who's upbeat?
-- Two-thirds (66 percent) of those who see rising energy prices as
a potential barrier to their company's growth are optimistic
about the next 12 months, up from 44 percent in the prior quarter.
-- 75 percent of those who see their company as not threatened by
energy prices are optimistic, up from 60 percent.
A similar view of the world economy: In addition, 70 percent of international marketers are optimistic about the world economy over the next 12 months, up from 54 percent in the prior quarter. Only 26 percent have an uncertain view, and four percent are pessimistic.
"What we're seeing is a major quarter-to-quarter attitude turnaround by leaders of large U.S. businesses," said John O'Connor, vice chairman of PricewaterhouseCoopers LLP. "They have dealt with the traumas of the third quarter, and believe they are prepared to move on."
Healthier growth expected: revenue growth targets for the next 12 months have been raised to 9.0 percent from 8.3 percent in the prior quarter, but remain shy of the year-ago goal of 9.6 percent.
-- Energy-sensitive businesses, though expecting
slower-than-average revenue growth, are now projecting a
7.8 percent revenue increase, well above the 7.1 percent they
had estimated last quarter.
Stronger margins: Costs are up and pricing is attempting to keep pace, to protect and strengthen gross margins. Higher costs were reported by 56 percent of surveyed companies, and increased pricing by 44 percent. In the process, improved margins were reported by 31 percent and lower margins by only 19 percent -- for a net of 12 percent improving -- up from a net of nine percent improving in the prior quarter.
-- For energy-sensitive companies, margins remained slightly
positive (a net of seven percent increasing). But 32 percent
report that decreasing profitability could be a barrier to
their growth over the next 12 months, compared to only 22
percent across-the-board. And, their concern about market
demand is also higher (37 percent, versus 30 percent).
"Although higher prices are still chasing higher costs, it appears that these companies' gross margins are intact, if not stronger, today," said O'Connor. "Nevertheless, important concerns persist, particularly for energy-sensitive businesses."
More major new investments: Now 55 percent expect to make major new investments over the next 12 months (up from 51 percent), and they plan to spend at a higher level, 9.5 percent of revenue (up from 8.0 percent).
-- Planned investments by energy-sensitive companies have risen,
and are now on par with all companies surveyed: 57 percent
planning, with spending at 10.1 percent of revenue.
Increased investments are expected in several key areas: information technology, planned by 45 percent; new product or service introductions, 44 percent; business acquisitions, 44 percent; geographic expansion, 39 percent; facilities expansion, 35 percent; and marketing & sales promotion, 32 percent.
Growing interest in M&A: 50 percent plan to consider M&A-related initiatives over the next 12 months (up from 44 percent in the prior quarter), with most focusing on purchase of another business (46 percent).
Brighter jobs picture: 59 percent expect to be adding employees over the next 12 months and only eight percent reducing. An average of 2.1 percent net new hires is expected, well above the prior quarter's estimate of 0.7 percent.
-- Although many energy-sensitive companies (69 percent) now
expect to add employees, their planned level of workforce
increase is well-below-average: 1.1 percent.
Potential barriers to growth: Leading management concerns include: escalating energy prices (cited by 51 percent, down from 59 percent in the prior quarter); legislative/regulatory pressures (43 percent, up from 40 percent); market demand (30 percent, up from 28 percent); and higher interest rates (23 percent, up from 18 percent).
"If American business learned one thing from the past recession, it was to be very cautious about future spending for new equipment, infrastructure, inventories, and payroll," said O'Connor. "Now, in a healthier economy, as some businesses lack the capacity -- and workers -- to meet demand, it's that earlier caution that may be fueling a readiness to invest."
PricewaterhouseCoopers' Management Barometer is developed and compiled with assistance from the opinion and economic research firm of BSI Global Research, Inc.
Additional information is available from Pete Collins, survey director and publisher, at 646-471-4496, or pete.collins@us.pwc.com.
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