Most Predicting Sales Growth, More Than Half
Planning New Full-time Hires
Bank of America Merrill Lynch released its 2016 CFO Outlook
today, reporting that CFOs rate the U.S. economy is at its highest
level since the 2008 recession and predict continued growth for
their companies and workforce in 2016.
In a survey of 500 financial executives from companies with
annual revenues ranging from $25 million to $2 billion, a majority
of CFOs report the outlook for the economy and their companies as
increasingly positive. Important findings include:
The U.S. and world economiesOn a 100-point index, with
zero being extremely weak and 100 being extremely strong, CFOs give
the U.S. economy an average score of 61, up from last year (59) and
the highest of the last eight years.
Ninety percent of CFOs believe that the U.S. economy will expand
(49 percent) or remain the same (41 percent). The top factors that
CFOs feel will impact the U.S. economy in 2016 are the elections
(63 percent) and health care costs (50 percent).
If interest rates were to rise, 70 percent of CFOs surveyed say
it would have no impact on how they would invest their working
capital, maintaining their current allocation of instruments and
deposits. This is up significantly from 51 percent in 2015,
suggesting that CFOs previously made adjustments in anticipation of
rising interest rates.
CFOs remain cautious about the world economy. The average rating
is 49, down from the 51 reported for 2015, reflecting the current
economic and political instability abroad.
Investing in employeesMore than half (54 percent) of CFOs
report they plan to hire additional full-time employees in 2016, up
from 52 percent expected last year, which is the highest reported
since the financial crisis in 2008. Of the remaining companies, 40
percent have no plans to change the size of their workforce.
On average, CFOs expect their labor costs to increase 5 percent
in 2016, down from 7.1 percent last year.
The most common benefits programs that companies use to attract
and retain qualified employees include: health care insurance (97
percent), retirement funding (94 percent) and bonuses or other
compensation incentives (87 percent). In addition, 65 percent offer
wellness programs, 55 percent provide education funding, 49 percent
offer flexible work hours, and 29 percent offer financial
counseling services.
“CFOs continue to be optimistic about the U.S. economy and their
own companies,” said Alastair Borthwick, head of Global Commercial
Banking at Bank of America Merrill Lynch. “This is consistent with
what we’re hearing from our middle-market clients. It‘s significant
that more than half the companies surveyed are investing their
resources to hire new full-time employees, for the first time since
the recession, as a means to support their anticipated growth.”
Growth strategies and tacticsMost CFOs forecast growth
for their companies in 2016: 50 percent expect 1 to 5 percent
growth; 28 percent predicts 6 to 10 percent growth; and 11 percent
anticipate growth of 11 percent or more.
In addition, sales growth projections for 2016 are trending in a
positive direction: 89 percent of CFOs expect their company’s sales
to grow in 2016, up from 87 percent in 2015 and 85 percent in
2014.
Expansion plans for companies remain consistent for the third
consecutive year. Among those companies implementing growth
strategies in 2016, 65 percent report that growth will occur in the
U.S. only, while 32 percent expect a mix of domestic and
international growth. Among companies with foreign market
involvement, 47 percent are growing in the U.S. only, and 50
percent are growing both inside and outside the U.S.
Most CFOs (85 percent) report that their 2016 profits will
either remain the same (50 percent) or increase (35 percent) in
2016.
Companies will employ a variety of growth strategies to meet
their 2016 objectives. The two most reported strategies are market
penetration [selling more existing products or services to current
customers] (85 percent) and market expansion [finding new customers
and/or new markets for existing products or services] (80 percent).
Other strategies include the introduction of new products or
services (57 percent), balance sheet optimization (26 percent), and
mergers and acquisitions (23 percent).
Nearly all companies (98 percent) will implement one or more
growth strategies in 2016. Of those companies pursuing 2016 market
expansion plans, 85 percent are looking to grow in the U.S., 17
percent want to expand internationally, and 15 percent are planning
both domestic and international expansion.
For companies considering a merger or acquisition in 2016, CFOs
cite the top three obstacles threatening completion as: cooperation
of the target company (54 percent), pricing costs (45 percent), and
uncertainty of return on investment (40 percent).
CFOs said the top business considerations threatening earnings
today are: health care costs (39 percent), weak domestic demand (37
percent), increased competition (31 percent), shortage of skilled
talent (31 percent), and regulatory issues (28 percent).
Approximately two-thirds or more of all U.S. companies say they
intend to hold constant the percentage of free cash flow they
allocate to share repurchases (77 percent), dividends (76 percent),
research and development (67 percent), and acquisitions (66
percent).
International expansionIn 2016, 61 percent of companies
surveyed report they will have some foreign market involvement,
with 48 percent buying from foreign markets, 41 percent selling to
foreign markets, and 21 percent having operations outside the U.S.
The top three regions where these companies will have international
operations are Asia (62 percent), Europe (61 percent), and Latin
America (50 percent).
Seventeen percent of U.S. companies report they are planning to
increase their foreign operations within the next two years, either
by expanding current operations or establishing new ones.
Technology and risk managementNearly all CFOs (96
percent) surveyed say they allocated budget dollars in 2015 to
introduce new technology or upgrade existing systems. On average,
companies devote 6 percent of their total budget to upgrading or
replacing technology.
CFOs report the most common risk management programs currently
in place at their companies are data security (91 percent),
disaster coverage/protection (84 percent), other types of fraud (77
percent), operational risk (71 percent) and succession planning (68
percent).
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