Originally from our sister publication, Advisor.ca.
North America’s chief financial officers (CFOs) were feeling more optimistic in the first quarter, marking a rebound from six months of declining sentiment, according to the latest CFO Signals survey from Deloitte.
The upswing in mood was apparent on both sides of the border, but Canadian CFOs are generally more sanguine than their American counterparts.
“Canadian CFOs continue to be more positive overall than U.S. CFOs, but the gap is narrowing quickly,” said Trevor Nakka, co-leader of Deloitte Canada’s CFO program. “This increased optimism appears to be leading to greater prospects for increased investment by North American companies, particularly in mergers and acquisitions.”
These hoped-for transactions ranged from small strategic acquisitions to major transformational deals, but the primary goal in either case was to expand the customer base in existing markets and find synergies and scale efficiencies.
Fewer than 10% of CFOs said their companies were delaying major deals at this time.
True to stereotype, Canadian companies are less aggressive in pursuing merger and acquisition deals; 45% of Canadian CFOs said they would respond to opportunities as they arise, while 80% of U.S. companies are actively seeking strategic deals.
“Canadian CFOs have raised their sales growth projections this quarter but continue to temper projections for earnings growth,” the report said. “U.S. CFOs have increased their earnings growth expectations despite lowering projections for sales growth. Companies in both countries expect higher domestic hiring and increased capital spending.”
Among Canadian CFOs, government environmental policies have moved to the top of the list of challenges they face, while in the U.S., social policy and spending are seen as the top challenges.
”Despite some significant differences in their outlooks for the near term, CFOs share similar concerns about events that could derail economic recovery,” said Dick Cooper, co-leader of Deloitte Canada’s CFO program. “In particular, they are expressing concern about the risk that economic troubles in Europe could spread and about the possible effects of rising tensions in the Middle East on oil and fuel prices.”
More than a third of Canadian CFOs said they plan to put more cash into domestic investment, compared with less than a quarter of U.S. CFOs.
Canadian CFOs say their companies are less likely to use cash for liquidity maintenance, while CFOs in both countries would use some to pay out dividends and to pay down debt.
If taxes were not a factor, half of CFOs said they would put more cash toward domestic investment, while one-third said they would pay down debt. Another third said they would increase dividends.
Investors shouldn’t hold their breath for dividend increases, however, as expectations continued their downward trend this quarter, reaching a new survey low of just 2.2%.
The Deloitte CFO Signals survey was conducted for the first quarter of 2012. Of the 94 CFO respondents, 21 were from Canada. More than 77% of the CFOs were from companies with more than $1 billion in annual revenues, and more than 71% were from publicly traded companies.