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Muddle in the Middle
Mid-market CFOs retain surprising confidence in economy, says Fleet
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Business New Haven
1/8/2001
By: BNH
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Amid growing fears that the U.S. economy may be tanking, middle-market manufacturers remain pretty optimistic in their economic outlook, according to the Glastonbury-based Fleet Capital Corp.'s Middle-Market Survey, an annual poll of 300 chief financial officers whose results were released in December.
A strong majority of middle-market manufacturing CFOs are bullish about the present state of the U.S. economy, giving it an average score of “81” on an economic scale ranging from zero (extremely weak) to 100 (extremely strong). Eighty-five percent of CFOs expect the national economy to expand or remain the same in 2001. That's down from 91 percent the previous year, but slightly more optimistic than the outlook in 1999.
“The results of the survey are encouraging and lend support to the idea that the economy, while clearly slowing, is headed for a soft landing, not a recession,” said Wayne M. Ayers, chief economist at FleetBoston Financial.
When questioned about their own companies, 73 percent of middle-market manufacturers said they expected their revenues to grow in the new year, compared to 82 percent in 2000.
“We place great credence on the opinion of middle-market manufacturers, as the success of their businesses depends on accurately forecasting customer demand,” says Myles Cohen, senior vice president of Fleet Capital. “These CFOs have a keen awareness of the factors that drive their businesses, and therefore, the economy.”
Other findings include:
Internet
Virtually all respondents (98 percent) said they use the Internet.
Fifty-seven percent of responding companies reported deriving some sales from the Internet - more than double the 24 percent who said so last year. Of these companies, their CFOs say an average of 17 percent of their current sales are derived from the Internet. Thinking ahead to 12 months from now, these firms, on average, anticipate that 23 percent of their revenues will be derived from Internet sales.
More than three out of five CFOs (62 percent) use the Internet to keep abreast of economic trends in their industries, 53 percent to purchase products, supplies and/or services, 53 percent to identify potential vendors (up from 41 percent in 2000), 47 percent for employee recruitment and 32 percent for on-line banking.
The vast majority of responding CFOs plan on increasing their Internet use in 2001 for these and other purposes.
Financing
The trend toward increased use of private equity continues: Thirty percent in 2001, up from 27 percent in 2000 and 19 percent in 1999.
Fifty-six percent of middle-market manufacturers expect their financing needs will stay the same or even decrease in 2001. Thirty-eight percent anticipate that their needs will grow.
A majority of CFOs (54 percent) anticipate using bank financing, followed closely by internal sources (53 percent), to fund their growth.
Thirty-four percent expect their cost of financing to increase in 2001.
Labor Costs & Product Pricing
Just about half (49 percent) of CFOs anticipate that their per-unit labor costs will increase in 2001 (down slightly from 51 percent last year). However, 55 percent expect that they will have the ability to pass these price increases onto their customers (up from 41 percent in 2000).
Mergers & Acquisitions
Ten percent of the companies surveyed expect to participate in a merger or acquisition in 2001, compared to 16 percent a year ago.
As a multiple of EBITDA, 39 percent of middle-market manufacturing CFOs believe that the purchase price for companies in their industry will increase in 2001, up substantially from the 29 percent who said so last year. Forty-one percent of CFOs believe that the purchase price will remain the same as last year.
Conducted from November 3 through November 30, 2000, the Fleet Capital Middle-Market Survey questioned the chief financial officers of 300 middle-market manufacturing companies throughout the U.S. The margin of error for this 300-interview survey is plus or minus five percent at the 95-percent confidence level.
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