Executive Briefings

Financial Executives at Mid-sized Industrial U.S. Manufacturers Confident in Economy for 2015

The results of the seventh edition of Prime Advantage's Group CFO Survey of mid-sized manufacturers show continued optimism in the economy and positive growth expectations in several industries.

Highlights of the survey by Prime Advantage, a buying consortium, include:

• Members are keeping a spotlight on the coming years with 67 percent working on new products and services, while 44 percent are increasing their R&D efforts in 2015.

• Ninety-three percent of financial executives are expecting their industry to grow or remain constant in 2015. This figure, while still robust, is a slight drop from 2014.

• The focus of capital expenditures in 2015 is heavily weighted towards equipment, with 96 percent of member companies looking to invest in this area. This is a 10-point jump from 2014.

• The impact of rising healthcare costs has created a new initiative to implement preventative healthcare programs at many mid-sized manufacturers. Fifty-five percent of member companies are taking this preemptive measure, up from 39 percent last year.

• As the fiscal landscape worsens in the EU, concerns over U.S. economic conditions have diminished. The number of members anxious over the U.S. budget deficit and government effectiveness has dropped more than 30 percent from previous surveys.

Revenues and capital spending remain strong

The financial executives polled for this survey predict another impressive year is on the horizon for small and mid-sized industrial manufacturers, as 90 percent expect revenues to increase or match 2014. This outpaces the Bank of America 2015 CFO Outlook survey in which 87 percent of those responding expect this same level of revenue success. Much of this optimism can be attributed to strong order pipelines, with 50 percent of member companies seeing new orders exceeding the levels they saw at this time last year. In another encouraging result, 100 percent of respondents anticipate revenue growth with their key customers over the next three years.

Small and mid-sized manufacturing CFOs are placing greater focus on production this year, as an all-time survey high of 96 percent expect to procure manufacturing equipment in 2015. Other major purchases of note include 44 percent of respondents planning to buy computer hardware and software throughout the coming year. This result deviates from the Bank of America 2015 CFO Outlook survey, where capital expenditures are expected to increase for only 46 percent of those responding.

Employment up in manufacturing

Small and mid-sized manufacturing firms are still struggling to find qualified workers to help with ramping up as their industries look for growth. More than 70 percent of members are experiencing difficulty finding capable employees in their markets with most stating that this is due to insufficient levels of skilled employees in their area. Members are also concerned about maintaining morale and productivity within their existing workforce during this hunt for new talent.

Competition increases

Once again, price pressure from competition is the external factor causing the most anxiety for members, as three-fourths place this concern at the top. Customer demand is the second-biggest apprehension, clocking in as a top fear for 67 percent of CFOs. This is the fourth consecutive year that price pressure from competition and customer demand ranked as the top two concerns. Distress over foreign competition cracks the top three for the first time in this survey’s history, most likely as a result of the strengthening U.S. dollar.

Economic Concerns have lessened

Confidence in the U.S. economy among members rose four points over last year, as half of respondents indicated that they are more optimistic about the U.S. economy compared to 2014. This finding is consistent with the 2014 Duke University/CFO Business Outlook survey’s 4th quarter results, which found 50 percent of respondents were more optimistic about the U.S. economy when stacked against the previous quarter. Notably this year, CFOs expectations for their own companies’ financial prospects and for the U.S. economy have converged. For the past several years, significantly more CFOs expressed confidence in their own companies than in the economy overall. But there is now rising confidence in the U.S. economy with 50 percent expecting growth, a record for this survey.

With regard to the question: Please rate the following with regards to their potential impact on the growth and stability of the US economy this year? (Scale of 1 to 5 with 1 being Not Concerned and 5 being Highly Concerned), respondents offered the following:

• US Budget Deficit 69 percent selected a 4 or 5 for this response in 2014 and only 40 percent selected it in 2015

• Effectiveness of the US Government 83 percent selected a 4 or 5 for this response in 2014 and only 51 percent selected it in 2015

• European Fiscal Conditions were identified by 33 percent in 2014 and 54 percent selected it as a high concern in 2015.

Methodology: In February 2015, Prime Advantage surveyed financial executives and leaders from member companies, with annual revenues ranging between $10m and $4bn, of which the majority ranges between $20m and $500m. The survey received 15 percent response rate from top professionals representing U.S.-based manufacturers in more than 25 different industries, including commercial foodservice equipment, packaging, truck and trailer, material handling, food processing and construction equipment. Prime Advantage has polled its members for their impressions of current economic conditions since February 2008.

To request a copy of the Prime Advantage 2015 CFO Survey, click here.

Source: Prime Advantage

Highlights of the survey by Prime Advantage, a buying consortium, include:

• Members are keeping a spotlight on the coming years with 67 percent working on new products and services, while 44 percent are increasing their R&D efforts in 2015.

• Ninety-three percent of financial executives are expecting their industry to grow or remain constant in 2015. This figure, while still robust, is a slight drop from 2014.

• The focus of capital expenditures in 2015 is heavily weighted towards equipment, with 96 percent of member companies looking to invest in this area. This is a 10-point jump from 2014.

• The impact of rising healthcare costs has created a new initiative to implement preventative healthcare programs at many mid-sized manufacturers. Fifty-five percent of member companies are taking this preemptive measure, up from 39 percent last year.

• As the fiscal landscape worsens in the EU, concerns over U.S. economic conditions have diminished. The number of members anxious over the U.S. budget deficit and government effectiveness has dropped more than 30 percent from previous surveys.

Revenues and capital spending remain strong

The financial executives polled for this survey predict another impressive year is on the horizon for small and mid-sized industrial manufacturers, as 90 percent expect revenues to increase or match 2014. This outpaces the Bank of America 2015 CFO Outlook survey in which 87 percent of those responding expect this same level of revenue success. Much of this optimism can be attributed to strong order pipelines, with 50 percent of member companies seeing new orders exceeding the levels they saw at this time last year. In another encouraging result, 100 percent of respondents anticipate revenue growth with their key customers over the next three years.

Small and mid-sized manufacturing CFOs are placing greater focus on production this year, as an all-time survey high of 96 percent expect to procure manufacturing equipment in 2015. Other major purchases of note include 44 percent of respondents planning to buy computer hardware and software throughout the coming year. This result deviates from the Bank of America 2015 CFO Outlook survey, where capital expenditures are expected to increase for only 46 percent of those responding.

Employment up in manufacturing

Small and mid-sized manufacturing firms are still struggling to find qualified workers to help with ramping up as their industries look for growth. More than 70 percent of members are experiencing difficulty finding capable employees in their markets with most stating that this is due to insufficient levels of skilled employees in their area. Members are also concerned about maintaining morale and productivity within their existing workforce during this hunt for new talent.

Competition increases

Once again, price pressure from competition is the external factor causing the most anxiety for members, as three-fourths place this concern at the top. Customer demand is the second-biggest apprehension, clocking in as a top fear for 67 percent of CFOs. This is the fourth consecutive year that price pressure from competition and customer demand ranked as the top two concerns. Distress over foreign competition cracks the top three for the first time in this survey’s history, most likely as a result of the strengthening U.S. dollar.

Economic Concerns have lessened

Confidence in the U.S. economy among members rose four points over last year, as half of respondents indicated that they are more optimistic about the U.S. economy compared to 2014. This finding is consistent with the 2014 Duke University/CFO Business Outlook survey’s 4th quarter results, which found 50 percent of respondents were more optimistic about the U.S. economy when stacked against the previous quarter. Notably this year, CFOs expectations for their own companies’ financial prospects and for the U.S. economy have converged. For the past several years, significantly more CFOs expressed confidence in their own companies than in the economy overall. But there is now rising confidence in the U.S. economy with 50 percent expecting growth, a record for this survey.

With regard to the question: Please rate the following with regards to their potential impact on the growth and stability of the US economy this year? (Scale of 1 to 5 with 1 being Not Concerned and 5 being Highly Concerned), respondents offered the following:

• US Budget Deficit 69 percent selected a 4 or 5 for this response in 2014 and only 40 percent selected it in 2015

• Effectiveness of the US Government 83 percent selected a 4 or 5 for this response in 2014 and only 51 percent selected it in 2015

• European Fiscal Conditions were identified by 33 percent in 2014 and 54 percent selected it as a high concern in 2015.

Methodology: In February 2015, Prime Advantage surveyed financial executives and leaders from member companies, with annual revenues ranging between $10m and $4bn, of which the majority ranges between $20m and $500m. The survey received 15 percent response rate from top professionals representing U.S.-based manufacturers in more than 25 different industries, including commercial foodservice equipment, packaging, truck and trailer, material handling, food processing and construction equipment. Prime Advantage has polled its members for their impressions of current economic conditions since February 2008.

To request a copy of the Prime Advantage 2015 CFO Survey, click here.

Source: Prime Advantage