Contact: Kathy Pitman, Duke-Fuqua, (919) 660-8090 or Chris Allen, FEI, (973) 898-4658
CFO SURVEY: Although Confident in Their Own Readiness,
14% Expect a Market Sell-Off in Response to Y2K and 6% Expect Lawsuits;
ALSO FOUND: Prices Expected To Creep Higher Next Year
DURHAM, N.C., Sept. 27 — A new poll of 272 companies indicates that 37 percent of corporate executives expect the US economy to experience some problems associated with Year 2000, while another 63 percent expect that Year 2000 will be a non-event.
Fourteen percent predict a market-wide sell-off in response to Y2K. Nearly one-half of CFOs in the mining and construction industries anticipate a sell-off. The results are from the latest Financial Executives Institute/Duke University Corporate Outlook Survey, conducted the week of Sept. 13.
"There is still some trepidation about Y2K, as six percent of CFOs expect their firm will be subject to lawsuits as a result of problems that occur when the calendar changes from 1999 to 2000," says Duke University finance professor John Graham, director of the survey. "And thirteen percent of banking and finance firms anticipate lawsuits."
Overall, however, confidence is high. Notes FEI President and CEO Philip Livingston, "Only 2% of the respondents expect that Year 2000 will interfere with their ability to provide products and services, and only 3% believe that their companies’ suppliers will have difficulties resulting from Y2K."
Other Y2K findings from the FEI/Duke survey:
- Four out of five firms dedicated between 1-5% of 1999 expenses to become Year 2000 compliant.
- Another one out of 25 firms spent between 6-10% of expenses, and 1 out of 100 dedicated over 10%, in an attempt to avoid Year 2000 problems. Thirteen percent of the respondents did not spend any money in anticipation of Y2K.
- 64% of firms say that expenses related to Y2K will not reduce earnings, and 36% say that there will be a drag on earnings lasting through the fourth quarter of 1999 in response to Y2K. Another 21% say the earnings reduction will last through the first quarter of 2000, and 6.4% say it will last at least through the first half of 2000.
- Only about one-half of mining/construction, communications/media, high-tech (e.g., biotech, software), and banking/finance firms think that Year 2000 is a nonevent.
Executives expect the prices of their products to increase 1.9% in the next year. This represents an increase over the 1.4% price inflation that was expected at the time of last quarter's survey, and the 0.8% price inflation that was expected six months ago.
- There appears to be a pricing recovery in foreign markets. Firms with at least 25% of revenues coming from foreign sales expect the prices of their products to increase by 1.5% in the coming year. This contrasts with price declines of 1/2% for 1999 (as predicted in last quarter's survey).
- Earnings growth is expected to average 16.9% during the next 12 months (median growth of 10%).
Capital spending is expected to remain flat during the next year. This is in sharp contrast to the mean increase of 11.5% that was expected just three months ago. The decreased capital spending might be in response to the two interest rate hikes instituted by the Federal Reserve Bank during the past few months.
During the coming year, mining and construction firms expect to reduce capital expenditures by 10% over year-earlier levels.
- 59% of firms would like to increase employment in the next year, with a 4% mean increase in number of employees.
- Firms with at least 50% of sales coming from foreign operations expect no employment growth.
- The median firm expects output per employee to increase by 3% in the next 12 months. This is little changed from expectations during the past 3 months. This indicates that the executives feel that recently reported reductions in actual productivity growth represent a temporary slowdown.
- Banking/finance firms expect productivity growth of 5.4%. Manufacturing firms expect 4.6% improvement.
- Overall, wages are expected to increase by 4.2% during the next year.
- High-tech firms expect wages to increase 12%, in contrast to an increase of 5.8% in transportation/energy.
- Wages will rise by 7.1% in the Pacific region, and by 5.6% in the Northeast region of the country.
Health Care Costs
- 94% of firms expect their health care costs to increase in the next 12 months, with an average increase of 6.2%.
- Costs will rise by about 9% for firms with sales less than $100 million, but only about 5% for firms with sales over $1 billion.
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 Sept. 13, 1999. 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. For more information, visit www.fei.org.
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.