With a few weeks remaining in the second 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 Q2 2019?
The answer is yes. 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 Q2 2019 is -2.3%. For companies that generate more than 50% of sales inside the U.S., the estimated earnings growth rate is 1.4%. For companies that generate less than 50% of sales inside the U.S., the estimated earnings decline is -9.3%.
The estimated revenue growth rate for the S&P 500 for Q2 2019 is 4.0%. For companies that generate more than 50% of sales inside the U.S., the estimated revenue growth rate is 6.0%. For companies that generate less than 50% of sales inside the U.S., the estimated revenue decline is -1.2%.
What is driving the underperformance of S&P 500 companies with higher global revenue exposure? At the sector level, the Information Technology is expected to be the largest contributor to the earnings decline for S&P 500 companies with more global exposure in Q2. Overall, this sector is predicted to report the highest earnings decline of all eleven sectors in Q2. This sector also has the highest international revenue exposure of all eleven sectors in the index.
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.