S&P 500 Companies with More Global Exposure Could See Double-Digit Earnings Decline in Q3

With a few weeks remaining in the third quarter, there are concerns in the market about the impact of trade tensions and slower global economic growth on companies in the S&P 500 with higher international revenue exposure. Given these concerns, are S&P 500 companies with higher global revenue exposure expected to underperform S&P 500 companies with lower global revenue exposure in terms of earnings growth and revenue growth in Q3 2019?

The answer is yes. S&P 500 companies with higher global revenue exposure are expected to report year-over-year declines in earnings and revenues in Q3 2019, while S&P 500 companies with lower global revenue exposure are expected to report year-over-year growth in earnings and revenues in Q3 2019.

FactSet Geographic Revenue Exposure data (based on the most recently reported fiscal year data for each company in the index) was used to answer this question. For this 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 estimated earnings decline for the S&P 500 for Q3 2019 is -3.6%. For companies that generate more than 50% of sales inside the U.S., the estimated earnings growth rate is 0.4%. For companies that generate less than 50% of sales inside the U.S., the estimated earnings decline is -10.7%.

The estimated revenue growth rate for the S&P 500 for Q3 2019 is 2.9%. For companies that generate more than 50% of sales inside the U.S., the estimated revenue growth rate is 4.7%. For companies that generate less than 50% of sales inside the U.S., the estimated revenue decline is -1.7%.

What is driving the underperformance of S&P 500 companies with higher global revenue exposure? At the sector level, the Energy and Information Technology sectors are expected to be the largest contributors to the projected earnings and revenue declines for S&P 500 companies with more global exposure in Q3. These two sectors have the highest (Information Technology) and fourth highest (Energy) international revenue exposures at the sector level in the index.