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Coming into the start of the Q1 earnings season, a number of companies with higher global exposure are facing the headwind of the stronger U.S. dollar, but may also see a tailwind from higher global GDP growth. Based on current estimates, are S&P 500 companies with higher global revenue exposure expected to outperform or underperform S&P 500 companies with lower global revenue exposure in terms of earnings and sales growth for Q1 2017? 

FactSet Geographic Revenue Exposure data (based on the most recently reported fiscal year data for each company in the index) can be used to answer this question. For this particular analysis, the index was divided into two groups: companies that generate more than 50% of sales inside the U.S. (less global exposure) and companies that generate less than 50% of sales inside the U.S. (more global exposure). Aggregate earnings and revenue growth rates were then calculated based on these two groups. 

The earnings growth rate for the S&P 500 for Q1 2017 is 9.2%. For companies that generate more than 50% of sales inside the U.S., the earnings growth rate is 6.0%. For companies that generate less than 50% of sales inside the U.S., the earnings growth rate is 15.7%.

The sales growth rate for the S&P 500 for Q1 2017 is 7.1%. For companies that generate more than 50% of sales inside the U.S., the sales growth rate is 6.1%. For companies that generate less than 50% of sales inside the U.S., the sales growth rate is 9.5%.

What is driving the expected outperformance of S&P 500 companies with higher global revenue exposure? At the sector level, the Information Technology and Energy sector are the largest contributors to earnings and revenue growth in Q1 for companies with less than 50% of sales inside the U.S.

GDP vs. Currency

“Global GDP growth is projected to increase, rising from just under 3% in 2016 – the slowest pace since 2009 – to 3.3% in 2017 and around 3½ percent in 2018.” –OECD Interim Economic Outlook (March 7)

“That said, at our Investor Day in October fiscal year 2016, we communicated that we expected FX to be a significant headwind through fiscal year 2018…. And since that time, the U.S. dollar has further strengthened against most international currencies.” –NIKE (March 22)

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Senior Earnings Analyst
John’s weekly research report, Earnings Insight provides analysis and commentary on trends in corporate earnings data for the S&P 500, including revisions to estimates, year-over-year growth, performance relative to expectations, and valuations. He is a widely used source for the media and has appeared on CNBC, Fox Business News, and the Business News Network. In addition, he has been cited by numerous print and online publications such as The Wall Street Journal, Financial Times, The New York Times, MarketWatch, and Yahoo! Finance.

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