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Deloitte survey: Canadian business optimism rebounds in second quarter, even as sales and earnings expectations slip back

CFOs are bullish about North American economy’s prospects for the coming year.

CFOs in Canada and the United States believe the North American economy will continue to recover for at least another year: Q2 2013 CFO Signals™ survey.

Toronto, June 27, 2013 – Chief financial officers (CFOs) in Canada and the United States are feeling much better about the North American economy and believe it will continue to recover for at least another year, according to Deloitte’s Q2 2013 CFO Signals™ survey. That heightened optimism is leading CFOs to raise their domestic hiring expectations even as they remain more muted in their expectations for sales and earnings growth and to look to invest their accumulated cash in growth activities, rather than holding on to it as a hedge against risk.

The quarterly survey, which tracks the thinking and actions of CFOs representing North America’s largest companies averaging more than $5 billion in annual revenue, saw net optimism (the difference between the percent of CFOs expressing rising and falling optimism) improve to +46 in the second quarter from the +32 recorded last quarter. While optimism has traditionally hit a peak in the first quarter each year, this marks the first time that optimism has carried into the second quarter since CFO Signals began in 2010. Much of this increased optimism can be traced to CFOs’ improved expectations for the North American economy, particularly among U.S. CFOs. About one-third of CFOs rate China’s economy as good, but they are almost universally pessimistic about Europe.

Rising expectations for domestic hiring
“Canadian CFOs have recovered a lot of the positive sentiments they had before their last six months of very muted net optimism, but they’re still less optimistic overall than their U.S. counterparts, which hasn’t been the case traditionally,” said Bill Cunningham, co-leader of Deloitte’s CFO program in Canada. “But their increasing net optimism means they’re now raising their growth expectations for domestic hiring, dividends and capital spending, even as they have somewhat reduced their expectations for sales and earnings growth.”

The Q2 survey showed net optimism among Canadian CFOs jumping to +39 from +7 last quarter, while U.S. CFOs’ net optimism rose to +46 from +33. The latest survey also showed Canadian CFOs narrowing the gap in their expectations for sales and earnings growth, with sales growth now expected to be 4.9% and earnings growth of 8.0%, compared to 7.4% and 11.8 %last quarter. They also boosted their expectations for domestic hiring growth to 5.4% compared to 3.5% last quarter, and anticipate capital investment growth of 5.5% after last quarter’s predicted decline of 9.2%.

Opportunities for organic growth
For the first time in several quarters, CFOs did not cite political gridlock in Washington, DC as one of their top concerns. Instead, they’re worried that governments may try to enact taxing and spending policies that could weaken consumer demand and have a negative impact on longer-term economic health. Despite this, many CFOs indicated they are no longer looking to hold cash as a risk hedge but to use it to invest, particularly in opportunities for organic growth, or to pay down debts, buy back stocks or pay dividends.

“The question of how companies best use their cash reserves has been keenly debated in recent months,” noted Greg Dickinson, director, North American CFO Signals survey, Deloitte LLP. “Based on the latest view from CFOs, their optimism on the Northern American economies is translating into a renewed desire to spend cash on growth opportunities, rather than continue to stockpile cash for a turbulent economy. The preference remains for organic growth within their company, but CFOs clearly view the M&A market as a strong alternative as well.”  

Other survey results
The Deloitte CFO Signals survey also revealed the following results (estimates are adjusted averages to reduce the effect of outliers):

  • Concern remains over public policy. Government spending and budget policy is again named by CFOs as the top impediment to growth, with 30%  of CFOs listing this in their top three impediments. The healthcare and pharmaceutical sectors are particularly concerned about this.
  • International taxes a perceived threat. Two-thirds of CFOs are concerned that foreign governments will step up efforts to tax profits of companies from outside their borders, with manufacturers particularly concerned. The same proportion of CFOs is concerned about the prospect of paying taxes on repatriated cash. The risk of governments more aggressively pursuing taxes on income from IP and intangibles is a concern for just over half of CFOs.
  • Environmental regulation concerns increase markedly. The percentage of CFOs citing environmental regulation as a top impediment to growth rose sharply from 16% to 27% in the second quarter. CFOs in the energy and resources sector were the main reason for this, with 82% of this group citing this concern.
  • Changes to risk management approach. In light of conditions over the past five years, CFOs confirmed their companies have taken strong steps to improve risk awareness and plan for risk events. Nearly 80% of companies have raised the visibility of risk within their boards and executive teams, while more than 70% have improved their ability to assess the probability and impact of risks
  • U.S. equity valuations are too high. Nearly 60% of CFOs think U.S. equities are overvalued while only 4% think they are undervalued. But when it comes to their own company’s stock, about 39% of CFOs thought their share price was too low versus 11% who think it is too high.
  • CFOs may have a pay-driven incentive to buy back shares.  CFO compensation increasingly reflects their broadening responsibility, with salaries impacted mostly by summary measures that reflect companies’ income statement, balance sheet and equity markets performance. Profitability is still the dominant driver of CFOs’ incentive-driven pay, followed by economic results, but earnings per share and share price were cited by nearly two-thirds of public company CFOs as having a moderate to strong influence. This could give CFOs a personal incentive to pursue share buyback.

Download now a copy of the results.

About CFO signalsTM
The Deloitte CFO Signals™ survey was conducted for the second quarter of 2013. 80% of the 105 CFO respondents were from companies with more than $1 billion in annual revenues, and 70%  were from publicly traded companies. There were 19 Canadian CFOs who took part, representing about 17% of the CFOs surveyed.

Each quarter, CFO Signals™ tracks the thinking and actions of CFOs representing many of North America’s largest and most influential companies. This report summarizes CFOs’ opinions in five areas:  business environment, company priorities, company expectations, finance priorities and CFOs’ personal priorities. For more information about Deloitte’s CFO Signals™ or to participate in the survey, please contact us.

About Deloitte’s CFO Center
Deloitte’s CFO Center harnesses the breadth of Deloitte’s capabilities to deliver forward-thinking perspectives and fresh insights to help CFOs manage the complexities of their role, drive more value in their organization and adapt to the changing strategic shifts in the market. For more information about Deloitte’s CFO Center, please contact us or visit our website.

About Deloitte Canada
Deloitte, one of Canada's leading professional services firms, provides audit, tax, consulting, and financial advisory services.  Deloitte LLP, an Ontario limited liability partnership, is the Canadian member firm of Deloitte Touche Tohmatsu Limited. Deloitte operates in Quebec as Deloitte s.e.n.c.r.l., a Quebec limited liability partnership.

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms.


Vital Adam
Deloitte Canada
Senior Manager, Public Relations

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