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After an extended stay on the weak side of the ledger, the outlook for manufacturing profitability is improving, according to a recent Manufacturers Alliance/MAPI survey.
The survey of 54 senior financial manufacturing executives found that 76 percent expect profitability in 2004 to be moderately higher, while another 8 percent expect profitability to be significantly higher than in 2003.
Factors most responsible for improved earnings include cost-cutting and efficiency/productivity gains. Executives whose firms have not seen improved earnings recently cite sluggish or falling domestic sales, continued pricing pressure from imported manufactured goods, and higher input prices as most responsible. Fifty-seven percent will retire some debt if earnings improve next year, while 35 percent will increase investment. Interestingly, 20 percent indicated that improved earnings would have no impact, while 16 percent said they would raise the dividend payout ratio, 10 percent would buy back equity, and 2 percent would pursue acquisitions. Respondents could choose more than one answer.
Executives also were asked about the impact of their foreign operations on the volatility of overall earnings. There was no clear consensus, with 48 percent reporting that earnings volatility had been unaffected, 46 percent indicating that volatility has increased, and just 6 percent said that foreign operations have reduced volatility.
"It is clear that profit margins in the manufacturing sector have been depressed over the last three years, including the first half of 2003," said Don Norman, Ph.D., Manufacturers Alliance/MAPI economist and survey coordinator. "Looking forward, however, the results of this survey suggest improvement in 2004. The expectations for profitability are consistent with what executives foresee for overall activity in the manufacturing sector next year."