Manufacturing CFOs Expect Business Growth in 2006 Despite Less Optimistic Outlook for Economy According to Bank of America Business Capital Survey
Expectation For M&A And International Business Highest In Survey’s History
November 22, 2005, Glastonbury, CT – Nearly three out of four manufacturing CFOs (73%) expect their company’s revenues to increase in the coming year – and nearly half (46%) predict increased profit margins. That’s according to an annual survey of U.S. manufacturing company CFOs conducted by Bank of America Business Capital, one of the world’s largest asset-based lenders.
The Bank of America Business Capital 2006 CFO Outlook, conducted by telephone from mid-August through mid-September 2005, surveys CFOs from 600 U.S. mid-size and large manufacturers with revenues ranging from $25 million to $2 billion.
Thirty-eight percent of respondents plan to fuel their revenue growth through increased capital expenditures. Thirty percent expect to participate in a merger or acquisition in 2006, up sharply from 23% last year and the highest percentage since the survey was first conducted in 1998.
Sixty-eight percent of those who sell to foreign markets expect their sales to increase in 2006 – especially in Asia and Europe.
“With healthy balance sheets, manufacturing CFOs are continuing to look for and find ways to grow their businesses, whether organically, through M&A or expanding internationally,” said Bank of America Business Capital President Joyce White. “It’s clear these CFOs are taking the steps necessary to adapt and succeed in an ever-changing business environment.”
Overall Economic Prospects Less Rosy
As bullish as most respondents were about their own company’s fortunes, they were less optimistic about overall economic growth prospects. Only 58% believe the U.S. economy will grow next year – down from 77% in last year’s survey – and one-third expect U.S. manufacturing to expand, down from 44% last year.
Fifty-seven percent are most concerned about the impact oil prices will have on the 2006 economy, and when asked how the U.S. economy will perform in 2006 compared to the world economy, 34% see the U.S. economy underperforming the world economy, double the 17% last year.
Eight out of ten respondents cited energy costs (84%) as their top financial concern, followed by cost of materials, supplies and equipment (82%) and healthcare costs (81%). Fifty-nine percent predict their labor costs will increase, up from 53% last year. Not surprisingly, 61% of CFOs plan to increase their product pricing in 2006.
“Manufacturers are feeling the strain of high energy prices, interest rate hikes and increasing healthcare costs,” said Mickey Levy, chief economist for Bank of America. “Nevertheless, they remain fairly confident about profit margins and capital spending plans.”
Other key findings:
* The majority of manufacturing CFOs see the current state of the U.S. economy in a positive light, giving it an average score of “66” on an economic scale ranging from 0 (extremely weak) to 100 (extremely strong). This is consistent with last year’s score.
* While 60% believe the actions taken by the Federal Reserve Board over the past year have helped the U.S. economy, that’s down from 72% last year and 83% the year before.
* Fifty-nine percent forecast an increase in their cost of capital.
* Thirty-eight percent say credit availability from their current lender has increased over the past 12 months.
* Twenty-five percent expect their borrowing needs to increase in 2006, the lowest percentage in the eight-year history of the survey.
* Letters of Credit (63%) topped the list of most widely used products and services from lenders, followed by Cash Management (60%) and Foreign Exchange (38%).
Mergers and Acquisitions
* Twenty percent believe there are more businesses available at lower prices, down from 27% last year and 38% the year before.
* Eighty-four percent conduct business internationally, the same as last year.
* Forty-five percent have international operations, up from 39% last year.
* Ten percent plan to repatriate international earnings as a result of the American Jobs Creation Act tax incentive.
Margin of error for the survey is +/- 4 percent. For complete results of the survey, visit www.bofa.com/businesscapital68.
Bank of America Business Capital is one of the world’s largest asset-based lenders, with 21 offices serving the United States, Canada and Europe. It provides companies with senior secured loans, cash management, interest rate, precious metals and foreign exchange risk management, and a broad array of capital markets products.
Bank of America is one of the world’s largest financial institutions, serving individual consumers, small and middle market businesses and large corporations with a full range of banking, investing, asset management and other financial and risk-management products and services. The company provides unmatched convenience in the United States, serving more than 38 million consumer and small business relationships with more than 5,800 retail banking offices, more than 16,700 ATMs and award-winning online banking with more than 14 million active users. Bank of America is the No. 1 overall Small Business Administration (SBA) lender in the United States and the No. 1 SBA lender to minority-owned small businesses. The company serves clients in 150 countries and has relationships with 97 percent of the U.S. Fortune 500 companies and 79 percent of the Global Fortune 500. Bank of America Corporation stock (NYSE: BAC) is listed on the New York Stock Exchange.
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