Coming into the Q2 earnings season, there were concerns in the market about the impact of a rising U.S. dollar and slower global economic growth on companies in the S&P 500 with higher international revenue exposure. Now that more than 90% of the companies in the index have reported results for Q2, did S&P 500 companies with higher global revenue exposure underperform S&P 500 companies with lower global revenue exposure in terms of earnings growth and sales growth for Q2 2018?
The answer is no. 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 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 blended (combines actual results for companies that have reported and estimated results for companies that have yet to report) earnings growth rate for the S&P 500 for Q2 2018 is 24.6%. For companies that generate more than 50% of sales inside the U.S., the earnings growth rate is 22.2%. For companies that generate less than 50% of sales inside the U.S., the earnings growth rate is 29.4%.
The blended sales growth rate for the S&P 500 for Q2 2018 is 9.9%. For companies that generate more than 50% of sales inside the U.S., the sales growth rate is 8.6%. For companies that generate less than 50% of sales inside the U.S., the sales growth rate is 13.5%.
What drove the outperformance of S&P 500 companies with higher global revenue exposure? At the sector level, the Information Technology, Energy, and Materials sectors were the largest contributors to earnings and revenue growth in Q2 for S&P 500 companies with more global exposure. Overall, these three sectors reported the highest earnings and revenue growth rates of all 11 sectors in Q2. These three sectors also rank first (Information Technology), second (Materials), and fourth (Energy) for highest international revenue exposures of all 11 sectors in the index.