Even in this economic downturn, half of manufacturing company chief financial officers recently surveyed expect their company's revenues to increase in the coming year – and nearly four in 10 (37 percent) predict increased profit margins. What's more, a majority (52 percent) of the CFOs say that the current state of the economy will have no impact on their growth plans. That's according to an annual survey of U.S. manufacturing company CFOs commissioned by Bank of America Business Capital, one of the world's largest asset-based lenders.
Conducted by Granite Research Consulting from mid-August through mid-October 2008, the Bank of America Business Capital 2009 CFO Outlook surveys CFOs from 600 U.S. mid-size and large manufacturers with revenues ranging from $25 million to $2 billion.
Manufacturing CFOs surveyed are evenly split on the question of whether the U.S. economy will expand in 2009, with 31 percent believing it will, approximately the same percentage that see the economy contracting (32 percent). This compares with 44 percent from last year's survey who expected the economy to expand and 20 percent who saw it contracting.
In their own sectors, 25 percent of manufacturing CFOs forecast expansion in 2009, down from 30 percent last year. The remaining CFOs are almost evenly split between no change (38 percent) and contraction (36 percent).
"Overall, these results reflect the severity of the current economic downturn and the uncertainty about how long it will take to work our way out of it," said Mickey Levy, chief economist for Bank of America. "But, CFOs are taking necessary steps such as trimming inventories and operating costs in order to remain competitive, as they try to weather the storm."
Nearly seven in 10 CFOs expect to raise the price of their products in 2009. This is a significant increase from the 56 percent predicting price increases last year.
When asked which factors are of most concern in respect to their potential impact on the economy in 2009, more than nine in 10 (92 percent) of CFOs surveyed cited the credit crisis. This was followed closely by the impact of the housing market, oil prices and the strength of the U.S. dollar, all at 85 percent.
With the considerable tightening in the credit markets, it is not surprising that 42 percent of CFOs forecast an increase in their cost of capital in 2009, up significantly from 26 percent last year.
In addition, the outlook for capital expenditures continues to weaken with only 20 percent of CFOs indicating that their capital expenditures for next year will be higher compared to 32 percent last year. Forty percent of CFOs expect to spend less or refrain from making capital expenditures altogether in 2009 compared to 27 percent last year.
"The weak economy and difficult credit conditions are bringing more deals to the asset-based loan market," said Bank of America Business Capital president Joyce White. "But, this environment is forcing lenders of all kinds to become more conservative – both in terms of structure and pricing of loans."
Twenty-three percent of CFOs surveyed expect their company's borrowing needs to increase in 2009 and 57 percent say they will remain the same as this year. While half of CFOs report that credit availability has remained the same over the past 12 months, 32 percent say their lender has restricted credit availability, up significantly from 10 percent last year.
Twenty-three percent of CFOs expect to participate in a merger or acquisition in 2009, consistent with last year. Fifty-six percent of manufacturing companies selling to foreign markets expect their sales to increase in 2009 – down from 71 percent last year.
Still Going Green
A bright spot despite tough times is that nearly two-thirds (65 percent) of CFOs surveyed report that their company has an environmental management plan and nine in 10 say the level of funding for their plan will either stay the same or increase in 2009.
Other key findings:
Economy: On the positive side, 64 percent of manufacturing company CFOs say the actions taken by the Federal Reserve Board over the past year have helped the U.S. economy. This compares to 58 percent last year. On the negative side, manufacturing company CFOs gave the current state of the U.S. economy an average score of 46, a significant drop from last year's score of 64 on a scale ranging from 0 (extremely weak) to 100 (extremely strong). Thirty percent of CFOs surveyed believe the U.S. economy will outperform the world economy in 2009, a significant increase from 22 percent in 2008, but a decline from a high of 58 percent in 2005.
Financing: The top three financial concerns shared by manufacturing company CFOs are the cost of materials excluding energy (81 percent), energy costs (73 percent) and healthcare costs (67 percent). Fifty-nine percent of manufacturing companies are considering financing in 2009, on par with 58 percent last year. The top reasons for financing are capital expenditures (31 percent), working capital (30 percent), U.S. expansion (17 percent) and acquisition (15 percent).
Fifty-four percent of manufacturing company CFOs plan to use internal sources as a means of financing in 2009. Other types of commonly used financing include cash flow financing (45 percent), asset-based financing (42 percent) and leasing (31 percent).
Of the various products and services offered by lenders, Cash Management (63 percent) and Letters of Credit (59 percent) continue to be the most used by manufacturing companies. These are followed by Foreign Exchange (36 percent) and Retirement Plan Services (36 percent).
Labor Costs and Product Pricing: Eighty-three percent of CFOs surveyed expect rising energy costs to impact their product pricing in 2009. Eighteen percent expect energy costs to have a significant impact on their product pricing, up from 9 percent in 2008. Fifty-six percent of CFOs expect their labor costs to increase in the coming year, on par with the 55 percent reported last year.
Mergers and Acquisitions: Forty-nine percent of CFOs believe that there are more businesses available at lower purchase price multiples in 2008 than last year. This is up significantly from 29 percent in last year's survey. Forty-five percent of CFOs think the purchase price of companies as a multiple of earnings will decrease in 2009, while only 17 percent feel it will increase.
International Outlook: Eighty-three percent conduct business internationally, consistent with last year. Thirty-six percent have international operations, down from 39 percent last year and 42 percent the year before. Among manufacturing companies with foreign operations, 56 percent report plans to expand them in 2008.
Although sales growth expectations in Asia (57 percent) remain constant from last year, only 45 percent of CFOs are expecting growth in Europe in 2009 down from 54 percent in 2008. Sixteen percent of CFOs surveyed expect sales to increase in the Middle East in 2009, compared to only 2 percent last year.
Margin of error for the survey is +/- 4 percent. For complete results of the survey, visit http://www.bankofamerica.com/businesscapital24.