CEOs Optimistic on U.S. Profits in Bull Signal for S&P 500
More U.S. executives than ever are increasing earnings forecasts compared with those lowering them, helped by almost $2 trillion of Federal Reserve spending and a recovery in the global economy, according to a new report from Bloomberg News.
EBay Inc., United Parcel Service Inc. and 196 other companies raised profit estimates above analysts’ projections last month as 130 firms cut them, the biggest gap since Bloomberg began tracking the data in 1999. Shipping companies and computer makers boosted forecasts the most, pushing the Morgan Stanley Cyclical Index of businesses most tied to the economy up 27 percent since July 2.
Companies are raising the outlook for U.S. profits at the same time the Fed is trying to prevent deflation and reduce unemployment by purchasing an additional $600 billion in Treasuries.
The last time executives were this optimistic, stocks climbed 39 percent over the next 3 1/2 years, data compiled by Bloomberg show.
Interestingly, Brazil, Russia, India and China, the biggest developing nations, are forecast to expand more than the U.S. next year. Their growth will average 6.6 percent, according to the median economist forecasts in a Bloomberg survey and IMF projections.
“Earnings have been phenomenal out of corporate America,” Robert Doll, chief equity strategist at BlackRock Inc. “They’ve delivered versus expectations, yet again outshining the tepid economic recovery. I think that’s the real story.”
To read more about projected U.S. corporate profits, please click here.
Using a Board Seat as a Stepping Stone
For many executives, a corporate directorship offers a route to move ahead at their current company or elsewhere because the stint enhances their leadership skills and visibility. But landing and leveraging a board seat demand a different and longer campaign than a conventional job search.
For example, Victoria M. Holt, a senior vice president of PPG Industries Inc., quit late this summer to take command of Spartech Corp., where she previously was an outside director. Once you’re a director, you shouldn’t broadcast your management aspirations because “that creates huge conflicts of interest,” Holt warns.
But if an attractive opening occurs, “you need to be upfront about your interest early in the selection process,” advises Julie Hembrock Daum, leader of the North American board practice at Spencer Stuart, another search firm.
More boards now seek active executives below the CEO level, especially those savvy about hot areas such as compensation, global marketing, risk management and digital media. Non-CEOs account for 26 percent of new independent members on the boards of Standard & Poor’s 500 concerns, concludes a Spencer Stuart analysis of their latest proxy statements. That’s up from 18 percent in 2000. (Both figures include some retirees).
Another example is Denise Morrison, who will succeed Campbell Soup Co. CEO Douglas Conant, when he leaves the company next year. Pursuing a business directorship involves “matching skill sets and cultural fits,” Morrison said. She spent years prepping for her first public-company board assignment by getting nonprofit experience first. To read more from The Wall Street Journal, please click here.
When You Can’t Go Big, Go Niche
Wild Planet Toys CEO and founder Danny Grossman knew he had to distinguish his company from larger competitors. To do so, he started by identifying emerging niche industry segments. While the majority of ideas for new products in the toy industry are generated by outside inventors, Wild Planet develops most of its goods in-house. This approach gives it a distinct competitive edge over its rivals.
To stand out in the ultracompetitive $21 billion U.S. toy industry, Wild Planet zeroed in on market research that indicated that most toys employed a “close-ended” play pattern — meaning there’s just one way for a kid to play with a product. Grossman challenged his design team to create a line of “open-ended” products that go as far as a child’s imagination will take him or her.
“We wanted designers to feel like their crazy ideas could find a way to market,” Grossman said. The results of these “crazy ideas” are innovative product lines that are now available in more than 50 countries.
For more from Entrepreneur about strategy at Wild Planet Toys, please click here.
Joint Ventures: Creating Value against the Odds
Chief Executive Officers often cite lack of shared benefits between parent companies and poor communications as the leading causes of failures of their joint ventures, according to Accenture. Tom Herd, who is the managing director responsible for mergers & acquisitions offerings and capabilities within Accenture’s Strategy practice, says many M&A practitioners believe it is more difficult to create shareholder value through a joint venture than through traditional M&A. While Accenture’s analysis has shown that traditional M&A destroys shareholder value approximately 50 percent of the time, corporate development professionals indicate that joint ventures and other forms of alliance relationships fail to achieve their parent’s strategic or financial objectives as much as 75 percent of the time. Joint ventures combine the integration challenges of mergers and the ongoing relationship management challenges of alliances, making them inherently complex to manage.
Accenture says that companies that enter alliances and JVs most frequently cite overly optimistic projections and poor communications and relationships between parent companies as the two leading reasons for failure. Their executives cite lack of trust, widespread negative partisan perceptions, a suspicion that one party is benefiting more than another, and inefficient or inadequate communication as the most visible and troublesome symptoms of such poor relationships.
But there are some strategies to improve chances for success. The experienced JV practitioners choose their partners wisely, and then constructively manage their relationships outside the formal governance structure. These actions alone won’t guarantee the success of a JV, but they provide a strong foundation. To see more tips from Businessweek on making joint ventures successful, please click here.