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Midsize U.S. Companies Cut Broad Economic View in Third Quarter

Friday, 30 Sep 2011 03:09 PM

Small and midsize U.S. companies are more pessimistic about the overall economy than their own businesses, with more than half predicting revenue growth and planning to add jobs, a General Electric Co. survey shows.

The third-quarter survey, released today, reflects data from chief financial officers at 532 companies with average annual sales of $162 million across seven industries, said GE Capital, one of the biggest lenders to small and midsize U.S. companies since the global credit crunch.

About one-third of executives expect their own industry to grow in the next year, down from 55 percent in the first quarter. About 62 percent expect sales at their individual companies to rise in 2011, down 10 percent from the first quarter. Two-thirds of CFOs still plan to add workers, down from 80 percent in the first quarter.

“The CFOs have felt pretty good about their own companies, and then as you start moving up the economic landscape to the U.S. and global economy, the view shifts,” Dan Henson, who oversees GE Capital in the Americas, said in an interview.

The finance chiefs cited the U.S. budget deficit as the top economic concern. Results show a “clear decline” in broad confidence from July 4 through the U.S. congressional impasse on the debt ceiling and the downgrade of the country’s debt by Standard & Poor’s.

“It’s an extrapolation of what we see today in negative headlines and a lack of overall confidence,” Henson said. “But when you look at your own world, it’s not that bad.”

Earnings Outlook

About 73 percent said they still see improving or maintaining profitability in 2011, though that figure is down 10 percent from the same survey in the first quarter. The finance chiefs said credit availability has remained stable, with 60 percent confident the cost of capital will remain steady for this year. In industries where commodity costs are rising, most companies say they can pass the cost to customers, Henson said.

CFOs were interviewed in 30-minute segments using data from Dun & Bradstreet Corp., the Short Hills, New Jersey-based business information and database provider. Seven industries were included: metals and mining; food, beverage and agriculture; general manufacturing; retail; health care; technology and business services; and transportation.

The respondents weren’t necessarily GE Capital customers and had revenue of between $50 million and $1 billion, with the exception of transportation companies, whose revenue was about $10 million or higher.

The restructuring companies did over the past three years, including paying down debt and cutting expenses, has yielded individual confidence, Henson said.

Paying Down Debt

GE Capital’s own review of about 1,200 customers and their health shows less-leveraged balance sheets and fewer paying down debt, which indicates customers may have arrived at a comfortable level on their books, Henson said.

Those customers showed an average increase from a year ago of 11 percent in revenue and 21 percent in earnings before interest, taxes, depreciation and amortization, or Ebitda, Henson said

“They took dramatic action in the crisis, drove a lot of productivity in the cost structure,” Henson said. “They’ve figured out how to succeed in this more moderate growth environment with choppiness and they’re actually doing pretty well when they look at themselves.”

GE Capital is hosting a gathering of middle-market companies on the campus of Ohio State University in Columbus on Oct. 6 to discuss the trends and unveil more analysis about the swath of the U.S. economy. The parent company is based in Fairfield, Connecticut.

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