Global Exposure A Drag On S&P 500 Earnings

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The relative outperformance of the U.S. economy to that of Europe and most of the rest of the world has been noted in the headlines for some time now. Related to this, the consequences of slow global growth on U.S. firms has been the subject of intense growth among financial analysts stateside and abroad.

A November 14th report from FactSet Insight highlights that S&P 500 firms with significant global exposure performed relatively poorly in Q3 earnings relative to their peers with minimal exposure.

FactSet’s methodology involved dividing the S&P 500 index into two groups: firms that record more than 50% of sales inside the U.S. and firms that record more than 50% of sales outside the U.S. Total earnings and revenue growth rates for both groups were then calculated and compared.

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S&P 500

Relative S&P 500 earnings growth

The FactSet analysis shows that blended earnings growth for the S&P 500 as a whole  is 7.9%. For companies that generate more than 50% of sales inside the U.S., the blended earnings growth rate is 9.0%. For companies that generate more than 50% of sales ex U.S., the blended earnings growth rate is 6.5%.

Relative S&P 500 sales growth

FactSet’s analysis also highlighted that blended sales growth for the entire S&P 500 is 4.0%. For companies that record more than 50% of sales inside the U.S., the blended sales growth rate is 5.1%. For companies that record more than 50% of sales ex U.S., the blended sales growth rate is 1.6%.

Understanding international exposure and geopolitical risk

FactSet also reminds investors that you typically have to do a little digging to get an accurate picture of the degree of international exposure of a particular firm. Samsung, for example, is most often categorized as having 100% geographic exposure to South Korea. That, of course, is not the case, as international conglomerate Samsung’s exposure in South Korea is somewhere around 10%, with the remaining 90% from hundreds of other countries across the globe.