Europe has been a major trading partner of the United States for many decades. As the European Union is a major market for U.S. goods and services, any significant decrease in European sales is a real cause for concern for economists, policy makers and corporate leaders. That’s why Wall Street analysts keep close tabs on European economic and political developments.
A March 6th report from FactSet Insight highlights that the weak European economy, together with a stronger dollar and ongoing political tensions in Eastern Europe, have led to sluggish European sales from many if not most Dow component firms. FactSet Senior Earnings Analysts John Butters points out that only 11 of 30 Dow firms broke down European sales in their fourth quarter earnings. Of note, eight of these 11 large U.S. firms had seen a decrease in European sales compared to fourth quarter 2013.
Details on fourth quarter European sales slump
This number (8) was well above the six Dow Jones Industrial Average companies reporting a year-over-year sales decrease in the previous quarter. Butters points out that, in fact, this represents the highest number of Dow 30 companies reporting a year-over-year decline in since the fourth quarter of 2012, when nine companies did so.
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Also of note, on a sequential basis, nine of the 11 companies reported a decrease in their year-over-year sales growth rate in the fourth quarter of 2014 compared to the third quarter of 2014. Moreover, five of these nine firms have seen lower year-over-year revenue growth for three quarters in a row.
Athletic fashion and footwear firm NIKE was an exception to the rule in terms of sales performance in Europe. Among the 11 Dow firms providing sales figures for Europe, NIKE enjoted the highest revenue growth at 22%.
The strong dollar is becoming an increasing headwind for American companies operating in Europe. In their earnings report six weeks ago, Global fast food giant McDonald’s noted: “We expect this currency impact to significantly pressure the segment’s company-operated margins again in 2015, especially in the first half.”