CFOs are still searching for the bottom of this economic crisis, yet it seems to be receding ever further from view. Sixty-seven percent of respondents to this quarter’s Duke University/CFO Magazine Global Business Outlook Survey are less optimistic about the economy than they were last quarter, when finance chiefs already seemed as distressed as they could possibly be. Just 35 percent of them now expect the economy to begin recovery this year, with another third forecasting better days in the first half of 2010. A final third say recovery will not begin until the second half of next year or later.
The survey, which was conducted in late February and includes results from 1,268 respondents around the world, finds that in the coming months CFOs plan to cut costs every way they know how. U.S. companies will cut capital spending by 13 percent on average over the next 12 months, advertising and marketing budgets will shrink by 8 percent, and tech spending will be down by more than 5 percent.
Uncertainty, above all, is weighing on CFOs and financial markets alike. The ability to forecast results ranks as finance chiefs’ number-one concern about their own companies. Unsure about the economy, the strength of their own customer bases, and their ability to access capital, many finance executives are putting all investment plans on hold. Paul Miller, CFO at Bright Transportation Services, a commercial truck-leasing company based in Texas, says many of his customers are hesitant to commit to long-term contracts. Some are looking to extend existing leases for shorter terms. As a result, “it makes it hard for us to plan,” says Miller, who notes that although Bright’s finances are strong, the company may reduce its annual truck-replacement expenditures for its daily rental fleet by 50 to 60 percent if the economy remains soft and the market for financing continues to be volatile.
Many of Miller’s fellow CFOs also continue to feel the impact of the credit crisis – 54 percent of companies have been at least somewhat affected. Among companies rated B or lower, that number surges to 77 percent. “There are much, much more stringent requirements on the lending side, and that’s before you even talk about pricing, which is up about 250 basis points,” says Miller. Finance executives say their cost of borrowing has risen by 213 basis points on average since the beginning of the credit crunch in the summer of 2007.
Richard Schrader, CFO at Parsons Brinckerhoff, a multinational engineering and construction firm, says that while “on paper” the company looks like it should have very good access to credit, the reality is proving quite different. “We have very little debt and very good borrowing capacity under our credit line, but the message we’ve gotten from the banks is, ‘Don’t borrow right now,’” he says.
As a result, the company is subjecting any proposed investments to a rigorous review. “We’re looking at some decisions and saying, ‘Do we do this now, or do we wait and see if things are better in four or five months?’” says Schrader.