Coming into the Q3 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 Q3 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 earnings growth rate for the S&P 500 for Q3 2017 is 2.8%. For companies that generate more than 50% of sales inside the U.S., a slight earnings decline (-0.1%) is expected. For companies that generate less than 50% of sales inside the U.S., the earnings growth rate is 7.9%.
The sales growth rate for the S&P 500 for Q3 2017 is 4.9%. For companies with less global exposure, the sales growth rate is 3.8%. For companies with more global exposure, the sales growth rate is 7.7%.
What is driving the expected outperformance of S&P 500 companies with higher global revenue exposure? At the sector level, the Information Technology and Energy sectors are by far the largest contributors to earnings and revenue growth in Q3 for S&P 500 companies with more global exposure. If these two sectors were excluded, the earnings and revenue growth rates for S&P 500 companies that generate less than 50% of sales inside the U.S. would fall to 0.7% and 4.2%, respectively.
The Global Outlook is Improving
“Global GDP growth is projected to increase to around 3.5% in 2017 and 3.7% in 2018 from 3% in 2016, slightly improved since the OECD’s June Economic Outlook. The upturn has become more synchronised across countries. Investment, employment and trade are expanding.”–OECD Interim Economic Outlook (September 20)
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.