“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)
Coming into the Q1 earnings season, companies in the S&P 500 with higher global exposure were expected to benefit from the tailwinds of a weaker U.S. dollar and higher global GDP growth. Now that more than 90% of the companies in the index have reported results for Q1, did S&P 500 companies with higher global revenue exposure outperform S&P 500 companies with lower global revenue exposure in terms of earnings growth 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 sales growth rate for the S&P 500 for Q1 2018 is 8.2%. For companies that generate more than 50% of sales inside the U.S., the sales growth rate is 6.4%. For companies that generate less than 50% of sales inside the U.S., the sales growth rate is 13.1%.
What drove the outperformance of S&P 500 companies with higher global revenue exposure? At the sector level, the Information Technology, Materials, and Energy sectors were the largest contributors to earnings and revenue growth in Q1 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 Q1. These three sectors also have the highest international revenue exposures of all 11 sectors in the index.