In line with this optimism, Trendsetter CEOs reset revenue growth projections for the next 12 months, up nearly two points from last quarter's 5.2 percent to the third quarter's 7.1 percent. Both international marketers and their domestic-only peers reported increased revenue projections, with the latter closing the gap (7.4 percent and 6.8 percent, respectively). Overall, more than two-thirds of leading private businesses plan for positive revenue growth over the next 12 months, with 33 percent expecting double-digit growth and 35 percent expecting single-digit growth. Only nine percent forecast negative growth, while 16 percent expect zero growth.
"With revenue increasing and productivity at an all time high, we're beginning to see signs of economic recovery," says Ken Esch, partner with PricewaterhouseCoopers Private Company Services practice. “Private business owners are taking full advantage of anticipated growth and are repositioning themselves for the future."
Improving Gross Margins Trigger Plans to Hire
Approximately 23 percent of private companies surveyed reported higher gross margins in the third quarter while 27 percent reported lower margins, resulting in a net minus four percent, better than the prior quarter’s minus 12 percent and one point higher (a net minus 3 percent) than one year ago. In line with these results, costs and prices decreased for net 15 percent and net 18 percent of all respondents, respectively.
"Lower than usual gross margins still represent a challenge for private company owners, but slightly better results this quarter combined with an expected increase in hiring indicates that leading private companies are taking action consistent with their increasingly optimistic view of the future," says Esch.
Approximately 42 percent of Trendsetter executives plan additions to their workforce, up from the prior quarter’s 34 percent and in line with last year’s 48 percent. Alternatively, 10 percent plan to reduce staff over the next 12 months, up one point from last quarter and up two points from last year. Surveyed CEOs project an average composite workforce increase of 2.5 percent – up from the prior quarter's 1.4 percent but remaining below last year's 3.6 percent. Smaller private companies (revenues under $100 million) plan more increases in their workforce than do larger counterparts, with anticipated overall composite workforce increases of 5.0 percent and 2.2 percent, respectively (both up 1 point since last quarter).
"Private companies generally operate with fewer people, so it's expected they will need to act quickly when they anticipate demand to pick up for their products and services," says Esch. "Private companies are also looking to upgrade their talent base, as the recession left many well-qualified people looking for work—even at reduced salaries."
International Sales Continue to Creep Higher
Those private businesses already operating abroad reported international sales improving over the prior quarter, with 32 percent reporting increases (up 8 points from the prior quarter but down 6 points from one year ago), 20 percent reporting decreases, and 48 percent reporting no change. Over the next 12 months, the average prospective contribution from international sales to total revenues among those operating abroad is 18 percent. Interestingly, those operating in emerging markets -- including China, India and Brazil -- expect a solid 26 percent contribution to total revenues, while all others selling abroad expect a 14 percent contribution.
Spending and Capital Investments Remain Steady
Similar to previous quarters, private companies doing business abroad -- especially the one-third selling in China, India and Brazil -- remain ahead of their domestic-only peers in prospective spending over the next 12 months. Approximately 29 percent (up 1 point from last quarter) of all Trendsetter executives plan major new investments of capital over the next 12 months; prospective spending is expected to be an average of 8.9 percent of sales (up from 7.1 percent in the prior quarter and 8.2 percent one year ago).
 | International Marketers | Domestic-Only Peers | Marketing in China/ India / Brazil | |||
| | | | | | |
| Plans over the Next 12 months | 3Q 09 | 2Q 09 | 3Q 09 | 2Q 09 | 3Q 09 | 2Q 09 |
| | | | | | |
| 34% | 35% | 25% | 22% | 40% | 50% |
| 15% | 17% | 3% | 1% | 28% | 28% |
| Increased Operational Spending (net) | 61% | 64% | 53% | 45% | 67% | 72% |
| | | | | | |
| 29% | 37% | 23% | 17% | 28% | 42% |
| 17% | 19% | 21% | 18% | 22% | 28% |
| 29% | 20% | 14% | 14% | 22% | 22% |
| 21% | 15% | 5% | 4% | 17% | 22% |
"These results reflect an economy on the mend, and companies operating internationally are able to take advantage of higher growth opportunities around the world," says Esch. "The emerging markets continue to be a viable source of growth and development, as evidenced by the significant planned investments by companies in these markets."
Bank Loans and Lack of Demand Cited as Barriers for Growth
Despite a four point drop from last quarter, concern about lack of demand remains the principal potential barrier to growth, cited by 77 percent of respondents. Other top concerns include legislative and regulatory pressures (43 percent), profitability and decreasing margins (43 percent), possibility of increased taxation (35 percent) and lack of capital for investment (27 percent).
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