The value of the S&P 500 continued to tumble this past week, falling 2.3% over this time frame (to 1862.76 from 1906.13). Since the end of the third quarter (September 30), the S&P 500 is down 5.6% (to 1862.49 from 1972.29). A number of reasons have been cited for the decline in the value of the index over this time frame, including concerns about economic weakness in Europe, slower economic growth in China, the stronger U.S. dollar, geopolitical tensions in Ukraine and the Middle East, and the potential spread of Ebola.
In conjunction with this decrease in the market, companies in the S&P 500 are have begun to report earnings for the third quarter and provide earnings guidance for the fourth quarter and future periods. Have companies in the S&P 500 been expressing concerns about some of these same issues in their earnings releases and conference calls?
To answer this question, FactSet searched for specific terms related to the six issues listed above (i.e. “Europe,” “Ebola,” etc.) in the conference call transcripts for the 68 S&P 500 companies that have conducted conference calls through October 16 to see how many companies mentioned these terms. In addition, FactSet looked to see if the company cited a negative impact or expressed a negative sentiment (i.e. “volatility,” “uncertainty,” etc.) regarding the term for either the quarter just reported or in guidance going forward.
The results are shown in the chart below. Based on the results, the issues that have been discussed by the highest number of S&P 500 companies to date are Europe and the stronger dollar.
Regarding Europe, 44 companies out of 68 cited “Europe” during their conference calls. Of the terms searched, “Europe” was cited by the highest number of S&P 500 companies during their conference calls. Of the 44 companies that discussed Europe, 20 cited some negative impact or expressed a negative sentiment during their conference call.
Regarding foreign exchange (stronger dollar), 38 companies out of 68 cited one of five terms (“foreign,” “exchange,” “currency,” “dollar,” and “FX”) related to foreign exchange ) during their conference calls (if the term was cited but not used in the context of foreign exchange, it was not included in the company count). Of these 38 companies, 29 cited some negative impact or expressed a negative sentiment about the stronger dollar during their conference call. This was the highest number of companies to cite a negative impact or express a negative sentiment about an issue.
It is interesting to note that while 25 companies cited “China” during their conference calls, only 7 cited a negative impact or expressed a negative sentiment. For three of these seven companies (ConAgra Foods, Yum! Brands, and McCormick & Co.), the negative sentiment or impact was directly related to a food-chain supply issue, and not to broader economic conditions. Based on these conference calls, slowing economic growth in China has not had a widespread negative impact on earnings and revenues for S&P 500 companies in Q3 2014 to date.
Finally, only 6 companies to date (Johnson & Johnson, Linear Technology, American Express, Baxter International, PPG Industries, and Delta Air Lines) cited “Ebola” during their earnings conference calls. Only PPG Industries discussed a negative impact in the broader context of weakness in the region.
“Well, if you look at a couple of the macro events in the region, and so, for us, our European business
includes Eastern Europe and Russia. It includes the Middle East and Africa. And we think that there has
been some moderation, obviously, of growth in – our Eastern European business has continued to be
good relative to the overall market. Russia has obviously weakened some. The Middle East is a difficult
market right now. And in Africa, although it's a smaller part of that overall region for us, both with the
port congestion, Ebola and other things – there are some macro or geopolitical trends right now in
Europe that are going to moderate those growth rates.” –PPG Industries (Oct. 16)
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