Contact: Mark Panus, Duke-Fuqua, (919) 660-2903 or Chris Allen, FEI, (973) 898-4658






DURHAM, N.C., Jan. 7 — Corporate earnings in 1999 across companies of all sizes are expected to better returns from last year, according to the 331 CFOs surveyed in the latest Financial Executives Institute / Duke University Corporate Outlook Survey. Executives in the largest firms (those with annual sales over $5 billion) expect earnings to increase 6%, mid-sized firms expect increases of 13%, and the smallest firms expect their earnings to increase by nearly 20%. Most CFOs expect earnings to pick up after a slow start – overall, 58% of the surveyed firms expect earnings to increase in 1999, but only 7.4% expect to report earnings increases for the first quarter of 1999.


"It is notable that 58% of the firms expect earnings to increase in 1999," says Duke University finance professor John Graham, director of the survey, "because only 15% expect sales revenue to increase. This indicates that many firms will wring their earnings increases from cost-cutting programs."


Executives were also asked to rank the three best and worst industries in terms of earnings performance for 1999. According to the survey, CFOs predict that the computer/high-tech industry will have the best earnings performance in 1999, followed by pharmaceuticals and telecommunications. The food/tobacco industry was rated the weakest, with the auto/transportation and chemical industries close behind.


Global Financial Crises May Worsen

Forty-two percent of CFOs expect that the global financial crises will be slightly worse, while 5% anticipate that it will be much worse in 1999. However, another 24% percent expect the crises to remain about the same, and 28% predict the crises will abate slightly. Only 1% predict that the crises will be much better in 1999. "There’s no strong consensus on what’s ahead for the global markets," says FEI President-elect Philip B. Livingston, "Much uncertainty remains."


CFOs of manufacturing firms are most pessimistic, with 8% expecting the crises to become much worse and 54% say slightly worse. "This probably reflects the intense competition manufacturing firms face as their Asian rivals struggle to survive," says Professor Graham. Banking executives, whose firms are vulnerable to loan default by companies in Russia and other developing countries, are also pessimistic with 6% anticipating that the global financial crises will become much worse, and 53% expect it to become slightly worse.





FEI/Duke CFO Survey – page 2



Employment growth will remain positive in 1999, but slow notably. Thirty-one percent of the surveyed firms expect to increase employment in 1999, compared to 56% that said they increased their number of employees in 1998. At the same time, wide-spread layoffs are not anticipated: only 11% say their number of employees will decrease, while 58% will maintain the same number of workers. On average, the firms expect to increase their

number of employees by about 3%. "The smallest firms expect to increase employment roles by about 4%, while the largest expect no change in the number of employees, on average," says Professor Graham.


Capital Expenditures

CFOs plan to increase capital spending in 1999, but at a slower pace. Only 24% of the respondents will increase capital spending in the next four quarters, compared to 55% of respondents who said they would increase capital spending in the FEI/Duke survey conducted last September. Another 7% say they will reduce capital spending in 1999, while 69% will invest the same amount as in 1998. On average, the surveyed firms will increase capital spending by 6% in 1999, with the largest increases coming from the high-tech industry and firms headquartered in the Northeast.



CFOs predict prices will increase 1.4% in 1999, with the largest increase in high-tech (computers, software), where executives expect the prices of their products to increase by 6.3%. Executives of manufacturing firms anticipate increasing the prices of their products a meager 0.2% in 1999.


"The effects of the global financial crises can be seen clearly in expected prices changes," says Professor Graham. "Companies with at least one-half of their revenues coming from foreign sales expect to increase the prices of their products only 0.7%. This reflects how difficult it is to institute price increases in foreign markets."



Wages and salaries are expected to increase the most in high-tech industries (8.4%) and in banking and finance (4.8%). In contrast, wages for manufacturing firms are predicted to increase by only 1.2% and those in transportation/energy by 2.6%. On average, the CFOs anticipate that wage and salary costs will increase by about 3%.


Health Care Costs

CFOs predict that health care costs will increase by 4.2% in 1999. Health care cost increases will be steepest in communications/media (6.2%) and lowest in mining/construction (3.1%).


How Difficult Has it been to Borrow?

The Fed reduced interest rates twice during the fourth quarter of 1998 in response to what it perceived to be tighter borrowing conditions. Fourteen percent of CFOs say that borrowing has been very easy in the last six months, with another 18% saying it has been somewhat easy.


Fifty-three percent claim that borrowing was no more difficult in the fourth quarter than in the first half of 1998 and earlier. Only 4% say that borrowing from banks and other lenders has been very difficult, while 11% say it has been somewhat difficult. "Apparently the Fed’s goal of increasing liquidity by reducing interest rates has been modestly successful," says Professor Graham.




FEI/Duke CFO Survey – page 3


By Region

The Northeast and Midwest regions of the U.S. should be bright spots for 1999, with CFOs in both regions expecting employment growth of more than 4% and capital spending growth of approximately 7%. The Mountain region will see the largest increase in salaries, with anticipated wage gains of 6.4%.


About the Survey

The survey is conducted quarterly by FEI and Duke University’s Fuqua School of Business. Each survey polls a broad cross-section of CFOs from over 3,000 U.S. companies. The current survey was conducted during the week of December 14, 1998. Complete survey results are available on the Internet at:

About FEI and Fuqua

Financial Executives Institute is the leading advocate for the views of corporate financial management. Its 14,000 members hold policy-making positions as chief financial officers, treasurers and controllers at 8,000 companies throughout the United States and Canada.


The Fuqua School of Business at Duke University was founded in 1970. Fuqua’s mission is to provide the highest quality education for business and academic leaders and to promote the advancement of the understanding and practice of management through research.