In 1Q 2008, PricewaterhouseCoopers interviewed 60 US-based
industrial manufacturing executives about their current
business performance, the state of the economy and their
expectations for business growth over the next 12 months.
We then compared their responses to the prior quarter's
results to see how the panel's 12-month outlook changed.
The final step was to compare their views to a wider panel to
show how the industry differs from the broader population.
Of those surveyed, the majority of US-based industrial
manufacturers said they are pessimistic about the prospects
for the US economy over the next 12 months, and most of the
others said they are uncertain. Only 12 percent remain
optimistic. Their overall uncertainty now includes the world
economy where 21 percent say they are pessimistic and 41
percent say they are uncertain about the next 12 months.
Overall, US-based industrial manufacturers will be readjusting
to a slower-paced domestic economy for most of 2008, but
with the continued strength of international sales, an uptick is
anticipated as they move into the first months of 2009.
Key findings:
- Optimism drops dramatically.
Those optimistic about the
12-month outlook for the US economy fell to a low of 12
percent, off 17 points from its 29 percent low in the prior
quarter. The majority is now pessimistic (52 percent) about
the US economy, and 36 percent remain uncertain. Far
fewer are optimistic about the prospects for the world
economy this quarter, dropping from 64 percent the prior
quarter to 38 percent in 1Q 2008.
- Revenue projections are lowered.
Own-company revenue
projections remain positive for 70 percent (off 11 points).
However, in the face of growing pessimism, senior
executives of US-based industrial manufacturers have reset
their targets, lowering them, on average, nearly a full point
from 5.4 percent in the prior quarter to 4.6 percent. Largely
responsible for these lowered projections, the oil/energyvulnerable
segment plans a 3.9 percent revenue growth
rate vs. 6.1 percent for its non-vulnerable peers, or 36
percent lower.
- International sales remain brisk for those selling abroad.
In
1Q 2008, 63 percent of international marketers reported
increased sales abroad, and 37 percent reported about the
same. Looking ahead over the next 12 months, the
contribution of international sales to total revenues projects
to 35 percent.
- Fewer new workforce additions are expected.
Overall,
fewer companies plan to add employees over the next 12
months, a drop from 36 percent the prior quarter to 32
percent in 1Q 2008. Conversely, 15 percent expect a
reduction in workers, which is similar to the prior four
quarters. The net workforce projection is a negative 0.3
percent, below last quarter’s plus 0.1 percent and last
year's plus 0.7 percent.
- Investments are up, but M&A plans cool.
Currently, 52
percent plan major new investments of capital, up from 41
percent last quarter. Two types of increased expenditures
continue to lead the way: information technology (40
percent) and new product or service introductions (38
percent). M&A plans are off from the prior quarter, 37
percent vs. 44 percent, respectively.
- Gross margins show strain.
Gross margins became an
issue for industrial manufacturers in 1Q 2008, turning
directionally net negative: 23 percent up, 35 percent down –
or net minus 12 percent (vs. plus 14 percent in the prior
quarter). Both costs and prices were higher in 1Q 2008.
- Growth concerns emerge.
Potential barriers to company
growth over the next 12 months were again led by
oil/energy prices and market demand. On the monetary
side, concern about decreasing profitability and monetary
exchange rates were on the rise, while capital constraints
also began to emerge. The profitability issue must be
carefully monitored in 2008, as higher prices may have
limits in chasing higher costs.
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