Optimism in the world economy among international marketers showed parallel results, with 15 percent of Trendsetter CEOs claiming they are optimistic about the global economy over the next 12 months, up five points from the previous quarter. However, this number is still 21 points below last year's 36 percent as nearly half of international marketers (48 percent) feel uncertain. And 37 percent are still pessimistic. Indicative of this change, 24 percent of international marketers reported increased sales abroad in 1Q09, with the majority (54 percent) remaining about the same, and 22 percent reporting a decrease.
"As we enter the second quarter, CEOs seem to feel the tide is turning. However, they are focused on sustaining the bottom line by managing their working capital and stripping costs out of their businesses rather than expanding through new investment," says Ken Esch, partner with PricewaterhouseCoopers Private Company Services practice. "It's important, however, that the plans they implement are sustainable and will continue once the economy recovers, allowing CEOs to begin differentiating themselves from the competition and emerging from the recession in a potentially stronger business position."
Gross Margins Remain Tight, Both Cost & Prices Lower
Gross margins remained tight in 1Q09, with net 15 percent of private company CEOs reporting lower margins. While this number is similar to the previous quarter's net 16 percent, it remains well below last year's net 3 percent reporting lower margins.
Both lower costs (net minus four percent) and lower prices (net minus 11 percent) were reported in 1Q09. "Many companies benefited from falling commodity and transportation and energy costs in the last half of 2008, but the tide has turned," Esch says. "CEOs are looking to human capital costs, such as salaries and benefits, to maintain profitability."
Growth Projections Lead in Emerging Markets
Overall, revenue projections for the next 12 months dropped from 5.2 percent to 3.4 percent. Although Trendsetter private companies doing business abroad (48 percent of total) remain ahead of their domestic-only peers in both prospective spending and revenue growth over the next 12 months, international sales are faltering a bit on a quarter-to-quarter basis. However, multi-country marketers selling their products in the strong-growth countries of China/India/Brazil are leading growth projections and have a positive quarterly movement (In 1Q09, the percent of this emerging markets segment increasing versus decreasing international sales was a positive 2:1 ratio). The emerging markets segment expects to grow revenue at a 7.5 percent pace over the next 12 months versus a 3.2 percent rate for all other international marketers. In addition, these international marketers expect international sales to account for 25 percent of total revenue versus 11 percent for others selling abroad. "Private companies operating in these strong emerging markets may have a more solid base for revenue growth in the year ahead," adds Esch.
Capital Investments Continue at a Slower Pace
The number of Trendsetter CEOs planning major new investments of capital over the next 12 months fell to 24 percent (down from 29 percent from last quarter and 35 percent from a year ago), as companies continue efforts to increase cash flow. The mean investment of capital as a percentage of sales holds steady at 7.2 percent of sales among fewer planners
However, slightly more than half of private businesses (51 percent) are planning to increase operational spending budgets over the next 12 months. Increased operational spending for research & development remained low at 10 percent.
"Despite increased optimism in the economy, CEOs are continuing to look for new cost cutting measures in addition to what they've implemented the past 12 months," adds Esch. "For example, there are a number of tax credits and grants that companies should be taking advantage of to move their business forward."
Demand, Profitability Continue to Present Challenges
Almost 9 out of 10 (86 percent) of surveyed CEOs cite lack of demand as a major potential barrier over the next 12 months, up 2 points over the previous quarter and 11 points from last year's levels. Trendsetter CEOs also expressed rising concerns over increased taxation (37 percent, up nine points from 4Q08) and to a lesser extent, legislative and regulatory pressures (38 percent, up three points from 4Q08). Lack of capital for investment also increased, from 22 percent one year ago to 28 percent.
In line with previous results, the number of respondents citing profitability/decreasing margins remained steady at 44 percent, unchanged from the previous quarter and up six points from a year ago;.
Concern over the availability of qualified workers declined slightly, cited by just 13 percent of respondents as hiring plans remain steady; this is down from 19 percent the previous quarter and 40 percent one year ago. In contrast, pressure for increased wages dropped sharply as a barrier, off 7 points to 7 percent.
Hiring Plans Nearly Flat
While the majority of leading private companies' hiring plans will remain the same over the next 12 months (59 percent), an overall increase to the composite workforce of 1.1 percent is projected, down from 1.7 percent the previous quarter and well off 5.9 percent a year ago. Large private growth companies are flat, averaging 0.5 percent workforce additions (20 percent adding/22 percent reducing), but smaller private companies plan to add 5.2 percent to their workforces (36 percent adding/6 percent reducing).
