Two Out of Three Senior Finance Executives Predict Stronger Corporate Performance in 2006; Survey Finds Only Half Expect U.S. Economy to Improve this Year.

CHICAGO -- Two-thirds (66 percent) of corporate America's finance leaders are bullish about the future performance of their companies, as their increased confidence in the pricing outlook offsets the threat of myriad higher costs, led by energy prices and employee healthcare.

However, chief financial officers and comptrollers are less confident about the prospects for the overall U.S. economy in 2006. Indeed, just 51 percent predict that the U.S. economy will improve this year while 39 percent expect it to remain the same and 9 percent say it will worsen. At the same time, nearly six in 10 (58 percent) senior financial executives expect inflation to increase in 2006 compared to 37 percent who say it will remain the same. Just 4 percent expect inflation to decrease.

One red flag is the potential for the federal debt to balloon significantly. While more than three-quarters (77 percent) of companies do not expect to cut healthcare benefits to retirees in the next 12 months, a full 17 percent of financial executives do anticipate cutting benefits in the coming year. These cuts are coming despite massive subsidies in the 2003 Medicare Modernization Act to encourage companies to maintain their retiree healthcare benefits, such as those for prescription drugs. As companies drop these plans, retirees turn to Medicare, driving up federal costs.

These are among the key findings from the Grant Thornton LLP Survey of Senior Finance Executives, which polled 122 chief financial officers and comptrollers at companies ranging in size from more than $2 billion in annual revenues to less than $50 million in annual revenues.

"Concern about higher costs is fairly constant in business, but companies are more confident this year of their ability to manage increases than they were in mid-2005, when we conducted our last finance executives' survey," says Ed Nusbaum, chief executive officer of Grant Thornton LLP. "Views on the economy remain guarded, which seems a prudent mindset given global events. Our findings suggest that roughly the same number of senior finance executives says the economy will stay flat or worsen this year as those who expect it to improve, but fears related to soaring oil prices have calmed somewhat as companies focus on managing what is truly within their control."

One reason so many companies expect to post stronger results in 2006 is their increased pricing power. Two-thirds (66 percent) say their companies will raise prices this year while one-third (33 percent) don't expect to increase their prices or fees. In June, 2005, just 44 percent anticipated that their companies would raise prices or fees in the coming six months.

Of those CFOs and comptrollers expecting to raise prices in 2006, 59 percent say their company's price increase will be less than 5 percent while 41 say their prices will rise more than 5 percent.

Despite the improved pricing outlook for many companies, senior finance executives are busy trying to minimize the impact of rising costs. While 60 percent say higher energy prices will not weaken their financial results in 2006, 39 percent of CFOs and comptrollers say they will hurt performance. That compares to 74 percent in June, 2005 who expected higher energy prices to weaken their company's performance in the second half.

Two out of three (66 percent) finance executives also expect another double-digit increase in employee healthcare costs this year, although 32 percent do not.

As a result, the outlook for workers is mixed. Companies are about evenly split on hiring plans. Fifty-one percent say they will increase the rate of hiring in 2006 while 48 percent say their companies will not.

About the survey

Commissioned by Grant Thornton LLP, the survey was conducted during February and March 2006, with responses from 122 CFOs and senior comptrollers at public and private companies with revenues ranging from less than $50 million to more than $2 billion.

About Grant Thornton

Grant Thornton LLP is the U.S. member firm of Grant Thornton International, one of the six global accounting, tax and business advisory organizations. Through member firms in 112 countries, including 50 offices in the United States, the partners and employees of Grant Thornton member firms provide personalized attention and the highest quality service to public and private clients around the globe. Visit Grant Thornton LLP at www.GrantThornton.com.