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NEW YORK -- Just half of U.S. consumer products goods company executives say they are optimistic about the U.S. economy over the next 12 months, a decline from 72 percent last quarter, PricewaterhouseCoopers found in its "Retail & Consumer Industry Practice's Consumer Products Barometer," which the accounting firm issued today.
In spite of reduced expectations for the U.S. economy, though, 67 percent of execs say they have an overall positive view of the global economy.
PricewaterhouseCoopers' "Consumer Products Barometer" is a quarterly survey of top executives in 50 large consumer products businesses (surveys conducted between Feb. 23 and May 14, 2007) vs. the 130 large, multinational companies' consensus (surveys conducted between Feb. 5 and April 27, 2007).
"As an industry driven by commodity pricing, consumer products companies are constantly affected by rising input costs, and executives are showing concern about the possible impact of inflationary pressures on our economy," noted John Maxwell, leader of PricewaterhouseCoopers' Retail & Consumer Industry Practice, in a statement. "While the barometer found that there is a substantial concern over the slowing economy, it was surprising that 70 percent of executives believe the domestic economy is actually growing."
Forty-eight percent of consumer products executives polled said they are planning major new investments of capital within the next year, an eight percentage-point decrease from the last quarter. Of those companies boosting their investment dollars, the majority intends to introduce new product/service introductions (64 percent), and half will upgrade information technology (50 percent). However, only 32 percent of companies are investing in facilities expansion, an 18 percent plunge from the previous quarter.
The report further found that three-quarters of CPG companies are undertaking other business initiatives over the next 12 months. As a reflection of their renewed confidence in the global economy, 50 percent of those surveyed want to expand to new international markets. This is a 15 percent increase above the all-industry consensus, a group of 130 large, multinational companies representing a broad assortment of service, technology, and manufacturing offerings. Additionally, 36 percent of executives are planning type sort of M&A activity, with 30 percent of respondents hoping to acquire another business.
Even with the planned investment increases, however, CPG companies are cutting back revenue growth targets for the next 12 months, projecting a 4.8 percent average growth -- 31 percent below the all-industry consensus of 7.0 percent average growth. Gross margins turned slightly negative in the first quarter, with 60 percent of CPG companies reporting higher costs, a six-point increase from the last quarter. Thirty-six percent upped their prices to compensate for higher costs, up four points from the prior quarter.
Concerns about oil and energy prices resurfaced as 70 percent of executives identified oil and energy costs as a prospective barrier to projected growth over the coming year. Companies that raised this as a concern had a 43 percent slower anticipated revenue growth rate, at 3.9 percent over the next 12 months, compared with 6.8 percent for all others. Also, 40 percent of the energy-concerned group reported decreased gross margins, and 71 percent cited higher costs.
"While most executives were concerned about a lack of strength in market demand last quarter, we saw a significant increase in the concern over escalating energy prices in Q1," said Maxwell. "With no end in sight for skyrocketing oil prices, we expect this trend of energy concerns to continue into the second quarter of 2007."
CPG executives are also falling behind their all-industry counterparts in increasing hiring plans over the next year. Similar to last quarter, only 30 percent of CPG companies are planning to add workers over the next 12 months, while 45 percent of the all-industry consensus will be making new hires over the next year.
Each quarter the report zeroes in on an issue currently affecting U.S. consumer products companies. This quarter CPG executives were asked about political risks. Of the 90 percent of CPG companies marketing abroad, 42 percent said that they've been affected by political risks while operating in the global market over the past two years. Among the top risks affecting these companies are sudden changes in regulations (20 percent), deteriorating economic environment (18 percent), and major changes in the country's political leadership (13 percent).
"As a result of globalization and the movement into emerging markets, more executives will have to address these kinds of issues head-on while marketing abroad," observed Maxwell. "Surprisingly, only one in four...have developed a risk appraisal plan so far."
PricewaterhouseCoopers develops and compiles the "Retail & Consumer Industry Practice's Consumer Products Barometer" with assistance from the opinion and economic research firm of BSI Global Research, Inc., based in Norwood, N.J.