Supply chain, cyber risk and the pandemic are big areas of concern, Deloitte's Q3 CFO Signals study found.
CFOs have lowered their expectations for revenue, earnings, capital spending and dividend growth in North America in the third quarter, according to Deloitte's latest CFO Signals report.
In slightly better news: 78% of CFOs rated the current North American economy as good, up from 75% in Q2. However, 54% expect conditions to be better a year out, a decline from 62% in the prior quarter.
Almost half (48%) believe Europe's economy will be better in a year, a slight improvement from 46% in the second quarter.
The assessment of China's economy also improved slightly: More than half of respondents (55%) expect China's economy to improve in a year, up from 53% in the prior quarter. In addition, 53% of CFOs expect economic conditions in the rest of Asia to improve and 23% said the same for South America.
The Deloitte survey provides a comprehensive pulse of North America's top financial executives' economic outlook, including their assessment of the economy and markets, financial prospects and growth for their own company and forward-looking strategy.
Supply chain concerns
Due to the immense strain of the pandemic, not surprisingly, supply chain concerns were top of mind for CFOs, specifically, cyber risks (69%), operational risks (60%), and geopolitical risks (56%). Further, nearly half of CFOs (44%) noted that supply chain shortages or delays have increased their companies' costs by 5% or more.
Sixty percent said this year's sales have either been reduced or will be by the end of the year as a result of supply chain disruptions.
Looking forward, 39% of CFOs expect sourcing from North America to increase while nearly one-third (32%) said their sourcing from China would decrease. The supply chain will also become more diversified for more than two-thirds of CFOs (69%) with 23% expecting greater vertical integration.
Meanwhile, 45% of CFOs said they plan to increase sourcing to North America, other parts of Asia and South America.
Pandemic pains continue
By far, in addition to supply chain and cybersecurity concerns, CFOs cited COVID-19, along with its variants, resurgence and impact on return to work and normal operations most frequently as their greatest external risk.
Spurred by worries about the pandemic continuing, while CFOs express greater optimism for their companies' financial prospects than during many other pre-pandemic quarters, the study found their net optimism declined from the second quarter.
Growth expectations, talent woes
CFOs' growth expectations declined in all metrics except for domestic hiring and domestic wages. Revenue growth expectations declined to 8.5% from 9.6 in the second quarter. Earnings growth dropped to 12.6% from 13.6%; capital spending to 8.8% from 12.4% and dividend growth to 3.8% from 4%.
For the second consecutive quarter, CFOs cited employee retention, morale, burnout and return to the office plans as their greatest internal concerns, according to the report. They also frequently cited maintaining focus on their organizations' strategic direction and executing strategies as other major internal risks.
Resurgent COVID-19 cases and new variants have compounded already acute talent concerns, the report said.
Mergers & acquisitions high on CFOs' agenda
The appetite for risk-taking remained strong at 65%, and nearly half of CFOs (46%) expect as much as 10% of their organization's growth in the next three years to come from M&As. An additional 26% except M&A to fuel 11%-20% of their companies' growth over the next three years, according to the report.
CFOs' top three areas of focus when considering possible M&A deals are when pricing and fit are favorable (52%), when they are seeking inorganic growth (49%) and to maintain competitive positioning (46%).
When asked if this is a good time to be taking greater risks, 65% of respondents said it is, a rate that is flat compared to the same rate in Q2. The most bullish CFOs on risk-taking were in the following industries: Telecom/media/entertainment (100%), healthcare/pharma (90%), energy/resources (75%), manufacturing (70%) technology (71%), services (62%) financial services (45%) and retail/wholesale (44%).
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