CFOs Express Low Expectations for Revenue and Capital Spending

More than 40% of CFOs indicate supply chain shortages or delays have increased their companies’ costs by 5% or more.

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In 3Q21, CFOs lower their expectations for revenue, earnings, capital spending and dividend growth, but raise them for domestic personnel and wages/salaries, according to a new Deloitte study.

Nearly half say supply chain disruptions have increased their costs by 5% or more, with 60% saying shortages and delays have reduced 2021 sales already or will do so by year-end.

And, 78% of CFOs rated the current North American economy as good, up from 75% in 2Q21; 54% expect conditions to be better a year out, a decline from 62% in the prior quarter.

From Deloitte:

  • Compared to three months ago, 66% of CFOs are more optimistic about their companies’ financial prospects, down from 75% in 2Q21.
  • More than 40% of CFOs indicate supply chain shortages or delays have increased their companies’ costs by 5% or more, and 60% 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.
  • More than half (55%) expect China’s economy to be better 12 months out, up from 53% in the prior quarter. In addition, 53% of CFOs expect economic conditions in the rest of Asia to improve, and 23% say the same for South America.
  • When it comes to CFOs’ sentiment for their companies’ financial prospects compared to three months ago, the optimism index fell from last quarter’s +70 to +59, with 66% of CFOs expressing rising optimism, down from 75% in 2Q21.
  • Talent and labor, retention, strategy execution and return-to-work ranked as CFOs’ chief internal concerns, followed by rising costs and cybersecurity. COVID-19 and its variants were overwhelmingly the most frequent response regarding external worries, followed by inflation, regulation and supply chain.
  • More than half of CFOs (52%) expect M&A to fuel 11% to more than 50% of their companies’ growth in the next three years.
  • In addition to increased costs of 5% or more, cited by 44% of CFOs, 32% say 2021 sales have fallen, and 28% expect future sales to suffer this year. For 32% of CFOs, supply chain shortages or delays have not had a substantial impact on their costs, and 29% noted they do not expect future sales or revenue this year to be affected.
  • In terms of most worrisome supply chain risks, 69% of CFOs indicated cyber risk, followed by operational risk (60%) and geopolitical risk (56%).
  • More than two-thirds of CFOs (69%) indicated an increase in the diversification of their supply chain sources, and 23% expect greater vertical integration within the next three years, along with decreases and increases in sourcing by region. They also expect sourcing to increase primarily in North America and Asia (other than China) and to a lesser extent in other regions.