NEW YORK, May 29, 2007 (PRIME NEWSWIRE) -- Only half of U.S. consumer products executives are optimistic about the U.S. economy over the next 12 months, down from 72 percent last quarter, according to PricewaterhouseCoopers' Retail & Consumer Industry Practice's Consumer Products Barometer, released today. However, despite lowered expectations for the U.S. economy, 67 percent of executives are upbeat about the global economy.
"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," explained John Maxwell, leader of PricewaterhouseCoopers' Retail & Consumer Industry Practice. "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."
Nearly half of consumer products executives surveyed are planning major new investments of capital (48 percent) within the next year, an eight percentage-point decrease from the previous quarter. Of those companies increasing their investment dollars, most plan to roll out new product/service introductions (64 percent) and half will ramp up information technology (50 percent). However, only 32 percent of companies are investing in facilities expansion, an 18 percent drop from last quarter.
The Barometer also found that three-quarters of consumer products companies are pursuing other business initiatives over the next 12 months. Reflecting the renewed confidence in the global economy, 50 percent of respondents are planning to expand to new markets abroad. This is a 15 percent gain above the all-industry consensus, a group of 130 large, multinational companies spanning a wide array of service, technology and manufacturing companies. In addition, 36 percent of executives are planning some sort of M&A activity, with most executives hoping to acquire another business (30 percent).
Despite the planned investment increases, consumer products companies are cutting back revenue growth targets for the next 12 months, projecting a 4.8 percent average growth, which is 31 percent below the all-industry consensus of 7.0 percent average growth. Gross margins turned slightly negative in the first quarter as more consumer products companies reported higher costs (60 percent), an increase of six points from the prior quarter. Over a third of companies (36 percent) increased their prices to compensate for higher costs, up four points from Q4 2006.
Concerns over oil and energy prices re-emerged as nearly three-fourths (70 percent) of executives reported oil and energy costs as a prospective barrier to projected growth over the next year. Companies that cited this as a concern were found to have a 43 percent slower anticipated revenue growth rate, at 3.9 percent over the next 12 months, versus 6.8 percent for all others. In addition, forty 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."
Consumer products executives are also falling behind their all-industry counterparts in increasing hiring plans over the next year. Consistent with last quarter, only 30 percent of consumer products companies are planning to add workers over the next 12 months. Meanwhile, the Barometer found that 45 percent of the all-industry consensus is making new hires over the next year.
Special Issues Affecting Consumer Products Companies: Political Risks
Each quarter, the Barometer spotlights an issue that is currently affecting U.S. consumer products companies. This quarter, the Barometer asked consumer products executives about political risks. Ninety percent of consumer products companies are marketing abroad and forty-two percent of those companies report that they have been impacted by political risks while operating in the global market over the past two years. The majority of the risks affecting these companies include abrupt changes in regulations (20 percent), deteriorating economic environment (18 percent) and major changes in the country's political leadership (13 percent).
Even though almost half of consumer products companies are affected by political impacts, only 24 percent currently have a political risk appraisal program in place.
"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," said Maxwell. "Surprisingly, only one in four, or 24 percent, have developed a risk appraisal plan so far."
Note to editor:
PricewaterhouseCoopers' "Consumer Products Barometer" is a quarterly survey of top executives in 50 large, consumer products businesses (surveys conducted between February 23 and May 14, 2007) compared with the 130 large, multinational companies consensus (surveys conducted between February 5 and April 27, 2007).
PricewaterhouseCoopers Retail & Consumer Industry Practice's Consumer Products Barometer is developed and compiled with assistance from the opinion and economic research firm of BSI Global Research, Inc. 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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