By John Butters, Senior Earnings Analyst
10 July 2016 09:00 am
There have been concerns in the market over the past few weeks regarding the impact of the Brexit vote on corporate earnings, particularly for companies based in Europe or with exposure to Europe.
During each corporate earnings season, it is not unusual for companies to comment on domestic or international events that had an impact on their earnings and revenues for a given quarter, or may have an impact on earnings and revenues for future quarters. While the majority of S&P 500 companies will report earnings results for Q2 2016 over the next few weeks, approximately 5% of the companies in the index (23 companies) have already reported earnings results for the second quarter. Have companies in the S&P 500 been commenting on the Brexit vote during their earnings conference calls for the second quarter to date?
Of the 23 S&P 500 companies that have reported earnings to date, eight discussed “Brexit” or “UK referendum” during their earnings conference calls. Of the 13 S&P 500 companies that have reported earnings after the results of the “Brexit” vote were announced (after June 23), six discussed “Brexit” or “UK referendum” during their earnings conference calls. Two of these companies (Paychex and Constellation Brands) stated they expected to see little to no impact from the “Brexit” vote. Two other companies (Acuity Brands and Walgreens Boots Alliance) stated that the Brexit vote created “uncertainty” and “volatility” in global markets, but did not discuss a specific negative impact on their businesses going forward. The final two companies, Carnival and McCormick & Company, stated that the Brexit vote created unfavorable currency exchange rates which would have a negative impact on their future earnings.
As more S&P 500 companies release earnings results in the coming weeks, the market will certainly watch for more commentary from these companies regarding the potential impact of the Brexit vote on earnings and revenues going forward.
Here’s a selection of quotes from some of the companies who have already addressed the topic:
No Impact from Brexit Vote
“As a reminder, Constellation is primarily a US business. Our sales outside the US represent about 10% of our total consolidated sales and are primarily related to our Canada business. As such, our exposure to European markets in particular is limited and a strong dollar, generally benefits us financially.” –Constellation Brands (Jun. 30)
“We don’t see much there. We’re mostly, outside the US we’re mostly in Germany, and then we have the Brazil startup there. So we don’t see it. Obviously, from an acquisitions standpoint, there are opportunities there that we would be probably a little more cautious about given kind of the uncertainty over a longer period of time. But right in the short term, certainly, it has very little, if any, impact on us, at least from the UK perspective.” –Paychex (Jun. 30)
Brexit Vote Created “Uncertainty” and “Volatility”
“Since the quarter end, as you have seen, the UK referendum on Europe has created some uncertainty and volatility in our markets. Our businesses and management teams have operated through many business cycles in many markets. For us, change is normal and sign of life. We work with and manage it every day. Yes, volatility and uncertainty create issues to be overcome, but they also provide opportunity for our company. It is our job to ensure that we meet these opportunities positively, and position and structure our company to its best advantage.” –Walgreens Boots Alliance (Jul. 6)
“As we look forward, we see significant long-term growth opportunities that are ever-changing and evolving in a positive direction for Acuity. Last week’s UK referendum vote to exit the European Union has created a great deal of uncertainty and generated significant volatility in the global financial markets over concerns regarding the potential impact, if any, on the global economy. This uncertainty and volatility have the potential to affect consumer and business sentiment which could negatively impact global economic activity. This, notwithstanding, we remained bullish regarding the company’s prospects for continued profitable growth.” –Acuity Brands (Jun. 29)
Negative Impact Due To Currency
“Our guidance range for adjusted earnings per share remains $3.68 to $3.75…Regarding last week’s referendum outcome on Brexit, the immediate impact to our business will be currency rates. Early this week, we reevaluated our guidance and determined that a 3% impact from currency is our best estimate at this point in time. Any longer term impact on our business will depend in part on the outcome of tariff trade and regulatory negotiations. As a point of reference, our sales in the UK were 8% of total company sales in fiscal year 2015.” –McCormick & Co. (Jun. 30)
“The second quarter results, combined with our strong book position, has enabled us to maintain the midpoint of our full year guidance range, despite a $0.17 drag from fuel and currency. Essentially, the strength in underlying demand for our product fostered greater ticket prices in both the quarter and in the remainder of the year, offsetting the rise of fuel prices since the time of our last guidance as well as the very recent significant movement in currency exchange rates following the Brexit vote….Yeah, so at this point in time, it’s the FX impact, which obviously we calculated in.” –Carnival (Jun. 28)