Business Expectations Concerning Price Changes And Unit Costs

The Atlanta Federal Reserve publishes a monthly report titled “Business Inflation Expectations” (BIE) that contains statistics from a survey of regional businesses’ views on various factors that impact profitability.  These factors include unit cost expectations, sales, profit margins, and price change expectations.

As described on the site:

Approximately 300 panelists receive the survey each month. Panelists represent businesses of various sizes headquartered within the Sixth District, which encompasses Alabama, Florida, Georgia, and sections of Louisiana, Mississippi, and Tennessee. Panelists range from executives of large corporations to owner-operators of small businesses. The industry composition of the panel roughly reflects the makeup of the national economy. Nevertheless, survey responses are weighted by industry shares of national gross domestic product.

A couple of excerpts from the BIE Survey (involving 190 firms) of June 21 include:

Respondents indicate that, on average, they expect unit costs to rise 1.8 percent over the next 12 months, roughly in line with the recent year-ahead inflation forecasts of private economists.

also:

The special question asked respondents to assign likelihoods to various price change scenarios over the coming year. 

Respondents’ mean expectation (weighted by industry share of GDP) for the change in the average price of their products and/or services was 1.5 percent.

Here is a chart depicting responses to the question of Year-Ahead Price Change Expectations:

Fed 6-21-13 - Atlanta Fed BIE Year-Ahead Price Change Expectations

 

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StratX, LLC offers the above commentary for informational purposes only, and does not necessarily agree with the views expressed by these outside parties.

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StratX, LLC (stratxllc.com) is a management consulting firm and strategic advisory that focuses on the analysis of current and future business conditions, and offers corporations and businesses advice, strategies, and actionable methods on how to increase revenue and profitability.

Importance Of Company Profitability To CFO Compensation

Recently Deloitte released their “CFO Signals” “High-Level Summary” report for the 2nd Quarter of 2013.   There are various notable items seen in the report; two items seem especially notable from a company profitability perspective.

First, as seen on page 5, regarding the importance of profitability to CFO compensation:

Growth is important, but profitability is still king when it comes to driving CFO compensation. More than 95% of CFOs report at least moderate influence and 75% report strong influence. But it is interesting to note that economic performance (through metrics like ROIC that incorporate both income statement and balance sheet measures) are the next strongest driver of CFO pay, with more than 70% of CFOs reporting moderate or strong influence. Also interesting is that measures more limited to the functional scope of finance (factors like liquidity, cost of capital, treasury returns, and tax efficiency) are considerably less influential – but there are important industry differences.

Also of note is an item seen on page 14 regarding (company) “Board Worries” of an external nature.  Under the “Industry” Category, “Intensifying Competition” (prices, tactics, etc.) is seen as having a high (relative to other worries) percent of CFOs naming the risk as a top-three concern.

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StratX, LLC offers the above commentary for informational purposes only, and does not necessarily agree with the views expressed by these outside parties.

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StratX, LLC (stratxllc.com) is a management consulting firm and strategic advisory that focuses on the analysis of current and future business conditions, and offers corporations and businesses advice, strategies, and actionable methods on how to increase revenue and profitability.

CFO Concerns Regarding Pricing And Margins

In the June Duke/CFO Magazine Global Business Outlook Survey, one of the reports is titled “Tables of Key Numbers.” (pdf) Two areas underscore CFO concerns with regard to company profitability and margins.

As seen on the bottom of page 2, there is a list of items seen under “Top Concerns for U.S. Businesses.”

Under the “MACRO CONCERNS” is seen the following:

  • Consumer Demand
  • Federal Government Agenda/Policies
  • Price pressure from competitors
  • Federal budget deficit

Under the “INTERNAL TO OWN FIRM” is seen the following:

  • Ability to Maintain Margins
  • Cost of health care
  • Attracting and retaining qualified employees
  • Ability to forecast results

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StratX, LLC offers the above commentary for informational purposes only, and does not necessarily agree with the views expressed by these outside parties.

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StratX, LLC (stratxllc.com) is a management consulting firm and strategic advisory that focuses on the analysis of current and future business conditions, and offers corporations and businesses advice, strategies, and actionable methods on how to increase revenue and profitability.

Note Concerning Estimated S&P500 Earnings Growth

The FactSet Earnings Insight report of June 21, 2013 had various notable commentary with regard to projected earnings growth and profitability trends for the S&P500:

from page 3:

No Change in Earnings Growth Rate This Week, But Cut by Almost 3/4 since March 31

The estimated earnings growth rate for the second quarter is 1.1%, unchanged from last week. Small upward revisions to earnings estimates for companies in the Financials sector were offset by small downward revisions to earnings estimates for companies in the Materials sectors during the week.
Largest Cuts to Estimates to date: Materials, Information Technology, and Industrials Sectors 
Since the start of the second quarter (March 31), analysts have reduced earnings growth expectations for Q2 2013 by almost three-fourths (to 1.1% from 4.3%). Eight of the ten sectors have lower expected earnings growth rates today relative to the start of the quarter, led by the Materials, Information Technology, and Industrials sectors. All three of these sectors have also witnessed a high percentage of companies issue negative EPS guidance for the quarter.

from page 4:

Estimated Earnings Growth (1.1%), but Falls to -2.2% Excluding the Financials Sector

The estimated earnings growth rate for the index for Q2 2013 is 1.1%. If this is the final growth rate for the quarter, it will mark the third consecutive quarter of earnings growth for the index after reporting an earnings decline in Q3 2011. However, only five of the ten sectors are projected to report higher earnings relative to a year ago, led by the Financials and Telecom Services sectors. On the other hand, the Information Technology sector is expected to report the lowest earnings growth of all ten sectors for the second consecutive quarter.

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StratX, LLC offers the above commentary for informational purposes only, and does not necessarily agree with the views expressed by these outside parties.

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StratX, LLC (stratxllc.com) is a management consulting firm and strategic advisory that focuses on the analysis of current and future business conditions, and offers corporations and businesses advice, strategies, and actionable methods on how to increase revenue and profitability.

S&P500 Earnings Estimates Trends

S&P500 earnings trends and estimates are a notably important topic, for a variety of reasons, at this point in time.

FactSet publishes a report titled “Earnings Insight” that contains a variety of information including the trends and expectations of S&P500 earnings.

For reference purposes, here are two charts as seen in the “Earnings Insight” (pdf) report of June 21, 2013:

from page 17:

(click on charts to enlarge images)

CY Bottom-Up EPS vs. Top-Down Mean EPS (Trailing 26-Weeks)

EconomicGreenfield 6-25-13 FactSet EPS

from page 18:

Calendar Year Bottom-Up EPS Actuals & Estimates

EconomicGreenfield 6-25-13 FactSet 6-21-13 EPS Forecasts CY Actual and Estimates

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StratX, LLC offers the above commentary for informational purposes only, and does not necessarily agree with the views expressed by these outside parties.

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StratX, LLC (stratxllc.com) is a management consulting firm and strategic advisory that focuses on the analysis of current and future business conditions, and offers corporations and businesses advice, strategies, and actionable methods on how to increase revenue and profitability.