Coming into the Q1 earnings season, companies in the S&P 500 with higher global exposure are expected to benefit from the tailwinds of a weaker U.S. dollar and higher global GDP growth. Based on current estimates, are S&P 500 companies with higher global revenue exposure expected to outperform S&P 500 companies with lower global revenue exposure in terms of earnings and sales growth for Q1 2018?
The answer is yes. 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 results are listed below
The estimated earnings growth rate for the S&P 500 for Q1 2018 is 17.0%. For companies that generate more than 50% of sales inside the U.S., the earnings growth rate is 16.1%. For companies that generate less than 50% of sales inside the U.S., the earnings growth rate is 19.3%.
The estimated sales growth rate for the S&P 500 for Q1 2018 is 7.2%. For companies that generate more than 50% of sales inside the U.S., the sales growth rate is 5.8%. For companies that generate less than 50% of sales inside the U.S., the sales growth rate is 11.4%.
What is driving the expected outperformance of S&P 500 companies with higher global revenue exposure? At the sector level, the Information Technology, Energy, and Materials sectors are projected to be the largest contributors to earnings and revenue growth in Q1 for S&P 500 companies with more global exposure. Overall, these three sectors are expected to report the highest earnings and revenue growth rates of all 11 sectors in Q1. These three sectors also have the highest international revenue exposures of all 11 sectors in the index.
“The world economy will continue to strengthen over the next two years, with global GDP growth projected to reach almost 4% in both 2018 and 2019.” –OECD Interim Economic Outlook (March 13)