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PwC: Private-Company Optimism & Revenue Forecasts Dip; Economic Uncertainty

August 15, 2012, 07:27 AM
Filed Under: Economy

In the second quarter of 2012, half of leading private companies were optimistic about the US economy, few were pessimistic (12 percent), and a fair number remained uncertain (38 percent), according to PwC US’s Private Company Trendsetter Barometer. The biggest movement between the first and second quarters was in the percentage of Trendsetter executives reporting optimism about the US economy, down 10 points. The percentage of Trendsetter executives voicing uncertainty and pessimism, meanwhile, rose slightly, by 6 and 4 points respectively.
Among Trendsetter companies that sell abroad, 23 percent were optimistic about the world economy, while the same percentage (23 percent) registered pessimism. Uncertainty was the predominant sentiment expressed by private businesses selling internationally, with over half (54 percent) of international companies taking that view.

“Continued fluctuation in private-company optimism is to be expected while the US economic recovery remains slow and the Eurozone unsettled,” says Ken Esch, a partner with PwC’s Private Company Services practice. “This up-and-down movement in Trendsetter confidence has been a consistent pattern over the past several years and signals a prevailing sense of uncertainty. It may take a few consecutive quarters of sustained high confidence before private companies feel they've truly turned a corner and are ready to pursue growth more aggressively."

Domestic Companies Cut Back on Revenue Targets but Still Expect Growth

Trendsetter executives revised their 12-month revenue-growth forecasts downward from 9.5 percent to 8.3 percent. Estimated growth for calendar-year 2012 was notably higher than forecasted 12-month growth — 10.0 percent versus 8.3 percent. Nonetheless, most private companies (86 percent) do expect positive revenue growth over the next 12 months, with 33 percent forecasting double-digit growth and 53 percent forecasting single-digit growth.
Notably, the decrease in forecasted revenue growth is attributable solely to Trendsetter companies that do not sell outside the United States. Their projected revenue growth dropped to 6.9 percent, whereas Trendsetter companies that sell internationally projected 9.7 percent growth. For companies selling in China, India, and Brazil, the growth rate was even higher, at 11.3 percent. However, the expected 12-month contribution of international sales to total revenue for companies selling abroad declined slightly for the second quarter, dropping from 21 percent to 18 percent.

“Private companies are factoring a number of variables into their growth projections," says Esch. "In addition to the slow US recovery and ongoing Eurozone troubles, there's also the US presidential election, potential year-end legislation, and looming tax issues — all of which will affect the direction that the economy takes over the next 12 months. Against this backdrop, emerging and other fast-growth markets continue to be bright spots, offering attractive opportunities for US private companies that are finding it difficult to meet their growth objectives through domestic sales alone.”

Bank Loans Remain Static

Limited lending activity was once again reported in the second quarter of 2012, with only 7 percent of Trendsetter companies reporting financing activity — 8 percent by domestic-only firms and 6 percent by international companies. Six percent of companies reported new loans from banks.

“Private companies continue to be conservative about outside financing, choosing instead to make liquidity a priority and fund investments through current cash flow,” says Esch. “This is likely to remain the case until economic growth picks up more steam.”

Read the full PwC US’s Private Company Trendsetter Barometer.

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