NEW YORK, March 4, 2009 (GLOBE NEWSWIRE) -- Few executives of consumer products companies reported an increase in costs and prices, according to the fourth quarter edition of the PricewaterhouseCoopers LLP Consumer Products Barometer, although pessimism abounds regarding opportunities to take advantage of lower costs to drive growth. Costs increased for only 32 percent of surveyed companies, while another 32 percent reported a decrease in costs, for a net of zero with higher costs, down dramatically from a net 50 percent in the prior quarter. Similarly, prices increased for 26 percent of companies and decreased for 22 percent, for a net plus 4 percent reporting increased prices, down from last quarter's net 48 percent.
In the fourth quarter, 63 percent of senior executives interviewed are pessimistic about the 12-month outlook for the U.S. economy, which represents an 11 point drop from the prior quarter's survey high of 74 percent. Only 9 percent remain optimistic, and 28 percent are uncertain. Attitudes are similar toward the global economy's 12-month outlook, with 57 percent pessimistic, only 4 percent optimistic and 39 percent uncertain.
Revenue Projections Drop
Looking ahead, respondents reset their 12-month revenue growth projections from an average of 2.7 percent last quarter to a minus 0.5 percent, more than a 3-point decrease. Only 39 percent of those surveyed plan for revenue growth over the next 12 months, with 4 percent expecting double-digit growth and 35 percent expecting single-digit growth. However, 22 percent expect negative growth.
"The consumer has spoken with their wallet and our industry is experiencing an unprecedented contraction in demand," said John Maxwell, leader of the U.S. retail and consumer industry practice at PricewaterhouseCoopers. "We're not at the bottom of the crisis yet, so consumer product companies need to prepare themselves for the times ahead."
International Sales Hold Steady
Despite the economic slowdown and decreased overall revenue, consumer products companies selling abroad expect the contribution of international sales to total revenue to hold up, projecting it at 27 percent over the next 12 months, up 6 points from the third quarter. However, while companies selling abroad continue to forecast positive growth, projections decreased for a net 14 percent in the fourth quarter. Only 22 percent project increased sales abroad, down 22 points from the third quarter, and 36 percent project a decrease, up 20 points from the prior quarter.
Weak Demand Remains a Top Concern
In the third quarter, lack of demand rose to the top as the area of most concern to senior executives of consumer products companies. In the fourth quarter, this concern intensified with 69 percent ranking weak demand as the top barrier to own-company growth over the next 12 months. Decreasing profitability was a close second, rising 20 points to 61 percent as concern over oil/energy prices dropped 24 points to 37 percent, nearly half of what it was one year ago (72 percent). Consumer products executives also cited the monetary exchange rate (39 percent) and legislative/regulatory pressures (35 percent) as major barriers to growth during the next 12 months.
Investing and Spending Slows
Even fewer consumer products businesses are planning major new investments of capital over the next 12 months, with 22 percent reporting as such in the fourth quarter, down 4 points from last quarter and 21 points below a year ago. Companies are also curtailing their level of investment over the same period, projecting it at 2.6 percent of sales. Increased operational spending is planned by 52 percent, down 11 points from last quarter. Areas of focus include new product or service introduction (32 percent) and information technology (26 percent).
"Consumer products companies are reining back on their spending to handle the anticipated decline in demand," noted Lisa Feigen Dugal, North American retail and consumer industry advisory leader for PricewaterhouseCoopers. "Those able to manage their internal operations effectively while implementing sustainable cost reductions should weather the storm."
M&A Activity Slows
Plans for new business initiatives remained notably high at 59 percent, with 30 percent planning to expand into new markets abroad, an increase of 6 points from the third quarter. One-fourth of companies plan to forge new strategic alliances in the upcoming 12 months (26 percent), down 4 percent from the prior quarter. Plans for M&A activity also declined to 22 percent, a drop of 8 points from last quarter.
Special Issues Affecting Consumer Products Companies
Each quarter, the Consumer Products Barometer spotlights issues that are currently affecting U.S. consumer products companies. Two special topics were addressed in the fourth quarter survey.
IT Function Outsourcing: Thirty-two percent of consumer products executives report they are only somewhat confident that their companies' existing IT skills, systems and capabilities are well-designed to support their current and near future business priorities, and 15 percent are not confident at all. Twenty-four percent indicated they already outsource a part of their IT function as a way to cut costs or improve performance and 46 percent have no plans to make new outsourcing arrangements. Overall, 37 percent believe their organization's IT function is only somewhat prepared to deal with potential business crises to prevent present and future occurrences such as identity theft or data loss, and 2 percent rated their organization as unprepared. Another 37 percent believe IT is very well prepared.
Enterprise Risk Management (ERM): Standard and Poor's will now apply enterprise risk analysis to corporate credit ratings, initially focusing on two areas: risk management culture and strategic risk management. Only 37 percent of consumer products senior executives believe their organizations are prepared for these new rating requirements. Thirteen percent classified their organization as unprepared.
Presently, only 24 percent agree that their companies' ERM practices will be highly rated by the rating agency; 9 percent disagree and nearly half (47 percent) are not sure how their company would rate.
ERM is becoming one of the top priorities at 33 percent of these consumer products firms while another 15 percent do not consider it a top priority. Among respondents, strategic risk management is always or usually considered important in strategic/corporate decision making -- by 45 percent and 24 percent, respectively.
A large number of senior executives (41 percent) believe their own company's ERM practices are helping their organization to be more successful; only 11 percent disagree and over one-fourth (28 percent) are not sure. Finally, one-third (32 percent) believe that if run better, their ERM program could help their organization be even more successful; 13 percent disagree and over one-third (35 percent) are unsure.
About the Consumer Products Barometer
Issued by PricewaterhouseCoopers' retail and consumer industry practice, the "Consumer Products Barometer" is a quarterly survey of top executives in 54 large, consumer products businesses (surveys conducted between November 12, 2008 and February 10, 2009) compared with the 130 large, multinational company consensus.
Profile of Consumer Product Barometer Demographics:
-- Average # Employees 10,468 -- Average Revenues $6.47 B -- Average Enterprise Revenues $14.51 B -- Market Capitalization $10.21 B
For more information about Barometer surveys, including recent economic trend data and topical issues, please visit our web site: www.barometersurveys.com
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