Strong Dollar Hurting S&P 500 Firms With Global Exposure: FactSet Insight

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Strong Dollar S&P 500

Another sign the buy companies with strong emerging exposure meme is dead… Last time it was Goldman – now its FactSet

A strong currency is a good thing for American travelers abroad, who get more of a foreign currency in exchange for their dollars. However, a strong currency also means your goods and services cost more in foreign countries, and consequently you tend to sell less of them.

According to a March 20th report from FactSet Insight, the strong dollar is indeed having an impact on the revenues and earnings of many large companies with significant international sales. FactSet Senior Earnings Analyst John Butters highlights that S&P 500 companies with more global exposure are anticipated to report a -11.8% earnings growth rate in the first quarter of 2015 versus a -4.8% growth rate for the index as a whole.

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Sales of firms with more global exposure impacted by strong dollar

Of note, the consensus estimate sales decline for the S&P 500 in the first quarter of 2015 is -2.8%. For firms that produce over 50% of sales within the U.S., the consensus estimate for sales growth rate is 0.6%. Firms that produce less than 50% of sales within the U.S. are projected to see sales slip by -10.2%.

Low sales and earnings growth in S&P 500 is not just due to the weak energy sector

Strong Dollar S&P 500

The more than 60% decline in the price of cruse oil over the last 9 months has buffeted the energy sector. Not surprisingly, this sector is expected to be the largest contributor to the anticipated first quarter 2015 declines in earnings and revenues in the S&P. That said, the declining performance in the S&P 500 is not just about the energy sector.

Butters notes that the estimated earnings growth rate for the S&P 500 ex-energy in the first quarter is 3.1%. For firms that produce over 50% of sales within the U.S., the consensus earnings growth rate estimate is 5.9%. For companies that report less than 50% of their sales within the U.S., earnings are expected to be down -1.3% compared to the first quarter of 2014.

Moreover, the estimated sales growth rate for the S&P 500 ex-energy in Q1 is 3.2%. For companies producing over 50% of sales within the U.S., the estimated sales growth rate is a decent 4.1%. For firms that produce less than 50% of their sales inside the U.S., however, the estimated sales growth rate is a tepid 0.9%.

Strong Dollar S&P 500