“The global economy is now growing at its fastest pace since 2010, with the upturn becoming increasingly synchronised across countries. This long awaited lift to global growth, supported by policy stimulus, is being accompanied by solid employment gains, a moderate upturn in investment and a pick-up in trade growth. Global GDP growth is projected to be just over 3½ per cent this year, strengthening further to 3¾ per cent in 2018 before easing slightly in 2019” –OECD Economic Outlook (November 28).
Coming into the Q4 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 65% of the companies in the index have reported results for Q4, are S&P 500 companies with higher global revenue exposure outperforming S&P 500 companies with lower global revenue exposure in terms of earnings growth and sales growth for Q4 2017?
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 (blended) earnings growth rate for the S&P 500 for Q4 2017 is 14.0%. For companies that generate more than 50% of sales inside the U.S., the earnings growth rate is 12.0%. For companies that generate less than 50% of sales inside the U.S., the earnings growth rate is 17.4%.
The (blended) sales growth rate for the S&P 500 for Q4 2017 is 8.0%. For companies that generate more than 50% of sales inside the U.S., the sales growth rate is 7.0%. For companies that generate less than 50% of sales inside the U.S., the sales growth rate is 10.5%.
What is driving the outperformance of S&P 500 companies with higher global revenue exposure? At the sector level, the Information Technology is the largest contributor to earnings and revenue growth in Q4 for S&P 500 companies with more global exposure.
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.