Investors want earnings driven by more than cost cutting
Business leaders in Davos have plenty to worry about, from the euro zone to global geopolitical upheavals, but at heart their problem is simple: how to find new revenue in a low-growth world. Half a decade on from the financial crisis, investors want to see earnings driven by more than just cost cutting. Their focus now is on a return to sales growth, which presents the world’s largest corporations with a $5-trillion challenge.
That is the amount of extra revenue the 1,200 top global companies need to find each year to meet analysts’ expectations, according to Accenture.
“The trouble is that stock markets’ expectations of the ability of companies to grow far exceeds the underlying macroeconomic growth rates,” said Mark Spelman, Accenture’s global head of strategy. “So companies need to get beyond just thinking about emerging markets and rising middle classes and start to look at those segments where you are seeing significant consumer change, because there is a lot of latent growth in those segments.”
Increasingly, companies are seeking specific pockets of opportunity for sales growth. They remain cautious about major new investments, however, with confidence among managers in the near-term outlook for their businesses still weak.
The annual PricewaterhouseCoopers survey of more than 1,300 CEOs found only 36% were “very confident” of their firm’s prospects for revenue growth in the next 12 months, down from 40% a year ago.
The mismatch between the sputtering global market for goods and services predicted by macroeconomists and the lofty numbers forecast by analysts following individual companies is striking. In all regions, analysts’ forecasts for company revenue growth are well above prevailing views on underlying economies.
While the World Bank last week cut its 2013 global growth forecast to 2.4% — and just 1.3% in advanced economies — analysts see company revenues expanding by 7.8% in Asia outside Japan, 3.8% in the US and 2.4% in the euro zone, according Thomson Reuters data.
And consensus forecasts call for 2014 sales to pick up even further, especially in the US, where a recovery, it is hoped, could be spurred by rapid growth in shale oil and gas supplies. Companies in the middle of the current hoped-for recovery are wary, as reflected in results from two of Europe’s biggest manufacturers on Wednesday.
Siemens warned that industrial demand was weakening, while Unilever said economic conditions were tough, though it had countered this by faster innovation