US multinationals hammered by energy prices

Fifty-nine percent of the readers of large US-based businesses now see energy prices as a potential barrier to their company’s growth, up sharply from 36% in the prior quarter. Executives from these energy-vulnerable have less healthy gross margins; and expect slower revenue growth, less new hiring and fewer key investments.

Only 70% of senior executives say the US economy is currently growing, down from 82% in the prior quarter. Moreover, just 50% are optimistic about the domestic economy’s prospects for the next 12 months, off from 62% in the prior quarter and 77% a year ago. And only 54% are optimistic about the world economy’s prospects over the next 12 months, compared to 59% in the prior quarter and 63% a year ago.

“The number of companies seen as energy-vulnerable has increased dramatically over the past quarter,” says John O’Connor, vice chairman of PricewaterhouseCoopers LLP. “And, across the board, the economic outlook is less positive — with a connection to the higher cost of energy. The big question is, are we witnessing a case of corporate jitters, or a shift in the tide?”

Running on empty?
Pricier energy’s impact may be seen in:

Squeezed margins. Among companies described by management as energy-vulnerable, 36% reported improved gross margins in the third quarter, but 32% said their margins declined — for a net of only 4% increasing.
Slower growth. Energy-vulnerable businesses are projecting revenue growth averaging 7.1% over the next 12 months, versus 10.1% for all others surveyed — a difference of 30%.
Fewer new jobs. Only 48% of energy-vulnerable businesses plan net new hiring over the next 12 months, versus 67% of all others.
Fewer key investments. Fewer energy-vulnerable businesses expect to make increased investments over the next 12 months for: information technology (42%, versus 64% for all others); and new product or service introductions (33%, versus 47% for all others).

“What was once a consistent, manageable cost has become increasingly problematic,” says O’Connor. “If a period of stability can be achieved — at whatever price-per-barrel — businesses and their customers will be better able to assess the implications, and try to adjust.”