CFO Outlooks Brighten as Pandemic’s Grip Loosens

CFO sentiment continues to rebound from the depths of the pandemic.

A year ago, the COVID-19 pandemic’s growing threat sent finance leaders scrambling to respond, driving the proportion of those whose optimism was rising plummeting to 11%, a record low in the 10-year history of Deloitte’s North American “CFO Signals”™ survey. Over the next two quarters, that index began to recover, but CFOs’ expectations had remained clouded by uncertainty over the economic stimulus and the direction of the pandemic.

Now, perhaps as a side effect to the increasing number of people receiving vaccinations, company performance outlooks have snapped back, and CFO optimism continues to grow. In the first-quarter 2021 survey, 67% report they are somewhat or significantly more optimistic about their own organization’s prospects compared to three months ago. The last time CFO own-company optimism came close to reaching such heights was in the first quarter of 2018, when 60% of CFOs indicated rising optimism.

As for their own roles, CFOs confirm having had a challenging year. More than half of CFOs (54%) report having higher demands from their executive/leadership teams since the beginning of the pandemic, while 37% say they have more work/volume within the pre-pandemic areas of their functional responsibility and, in many cases, broader functional responsibility (26%).

The survey was conducted from Feb. 8 to Feb. 19 and drew responses from 128 CFOs representing some of North America’s biggest and most influential companies. More than a quarter of surveyed CFOs come from companies with annual revenue in excess of $10 billion. Slightly more than two-thirds, 69%, are from public companies.

Some 66% of CFOs think this is a good time to take on greater risk, up from 49% in the fourth quarter of 2020, and near a survey high. Throughout 2019, the proportion of those saying it is a good time to be taking greater risk hovered at around 40%.

“Overall, we are seeing optimism from CFOs and an expectation that the economy will continue strengthening as society emerges from the pandemic,” says Joe Ucuzoglu, CEO, Deloitte US. “The lasting impact that the past year has had on business is becoming clearer as organizations shift to new ways of working, and new ways of engaging with customers, enabled by the acceleration of digital transformation.”

From a broader economic view, CFOs displayed a brighter outlook toward the North American economy, with 29% characterizing it as good (up from 18% in the previous quarter), and 73% believing that it will be better in a year (up from 59%). Moreover, China’s ongoing reopening may have contributed to the increased positivity toward that economy, with 57% of CFOs citing current conditions as good, and 64% expecting they will be better in a year (47% and 60%, respectively, in fourth-quarter 2020). The percentage of CFOs viewing Europe’s current conditions as good inched up to 7% from 5% in the prior quarter’s survey, and the percentage of those expecting improvement in a year fell slightly, from 37% to 36%. The eurozone’s worst decline in GDP (6.8%) in its history, debates over Brexit and European fiscal policy, and the emergence of COVID-19 variants might be some of the factors influencing North American CFOs’ views.

Greater Expectations

CFOs’ expectations for key operating metrics have also climbed, with the exception of earnings growth. Revenue growth expectations rose to the highest level in a decade, and capital spending reached its highest level since 2018. Comparing the expectations from the first-quarter 2021 survey to the fourth-quarter 2020 survey:

· Expectations for revenue growth rose to 8.5% from 7.7%.

· Earnings growth expectations declined to 12.8% from 13.8%.

· Expectations for capital spending growth increased to 10.2% from 8.0%.

· Expectations for domestic hiring also rose to 2.7% from 1.7%.

· Expectations for dividend growth climbed to 3.3% from 2.5%, still below the survey’s long-term average of 3.7%.

More than three-fourths of CFOs—83%, down from 87% last quarter—consider the equity markets overvalued; 2% see them as undervalued. On debt financing, 91% of CFOs view it as either very attractive (61%) or somewhat attractive (30%). Equity financing is considered very attractive by 18% of CFOs and somewhat attractive by 37%, with 17% regarding it as unattractive.

Internal risks cited by CFOs include a concern for the well-being and retention of talent, strategy execution and growth, as well as cost containment. Among the top external risks, CFOs cited ongoing concerns over the pandemic and timing of reopening, potential regulatory changes, the health of the economy, and cyberthreats. “While COVID-19 cases are falling and progress is being made on vaccine deployment, CFOs remain highly concerned about the well-being of their talent and potential burnout,” says Steve Gallucci, national managing partner, U.S. Chief Financial Officer Program, Deloitte LLP.

Judging by their responses, CFOs continue to have extensive responsibilities, perhaps as a result of increased demands during the pandemic. Moreover, as companies search for growth post-pandemic, there may be a heightened focus on M&A and strategic planning, with 83% saying that corporate development/M&A reports to them, and 86% indicating they’re responsible for strategic planning.