Dow Components Hurt By European Exposure In Q3

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“I think you’re all very familiar with the fact that Europe is in fact slowing down, and we’re seeing that across our businesses as well.” –Johnson & Johnson (Oct. 14)

Europe remains a tough spot in the global economy.  Manufacturing reports, inflation, GDP, PMI, etc have been dreadful the past couple of weeks and this has led to speculation that European Central Bank head, Mario Draghi could begin a large quantitative easing program that would include buying up government bonds of struggling countries.  Draghi says that the easing is important to jumpstart inflation and getting the Eurozone back from the ledge towards deflation and recession.

Europe’s earnings comparison to US companies

Weakness in Europe can further be seen by US companies and their earnings figures out of Europe.  Looking specifically at the Dow Jones Industrials 30 stocks, 11 of them said they had revenue growth in Europe, according to data from FactSet.  However, six of those eleven reported yearly declines in revenue, which represents that largest number of Dow components reporting European revenue declining since the first quarter of 2013, when seven companies reported European revenue declines.  Sales figures are not better either, with eight of eleven Dow components reporting lower yearly sales growth from its European operations.  In fact, only Nike Inc (NYSE:NKE) reported a strong revenue gain of 32% out of Europe.  Nike records its fifth consecutive quarter of revenue growth out of Europe, which is huge these days.  E I Du Pont De Nemours And Co (NYSE:DD) had the worst revenue growth in the third quarter 2014, down -4%.

Unless you are Nike Inc (NYSE:NKE), Europe has been a very tough place to do business in the past year.  With so much uncertainty and sovereign debt issues, it is no wonder we are seeing European economics struggle.  Fourth quarter 2013 was not all that bad for Dow 30 components, even E I Du Pont De Nemours And Co (NYSE:DD) saw revenue increase 11% year over year during the period.  However, it definitely shows that Europe has weakened this year and there is still disconnect between economic progress and central bank ideology.

Europe Earnings

Eastern Europe is dealing with Russian aggression

Aside from weaker economic reports out of Europe, we have seen the US dollar strengthen against the Euro this year and this certainly hurts US companies doing business overseas because their goods and services are more expensive now to consumers and businesses.  Additionally, Eastern Europe is dealing with Russian aggression and a focus on that issue has also taken away from focusing on economics and improving the region.  Overall, Europe is weak and we are seeing other regions of the world, such as Asia, struggle with weak economics as well.  While Europe is not in a recession right now, like Japan effectively is, Draghi and the ECB have to determine an appropriate course of action to help get Europe off the ground and promote business in the region.  Easing programs may be the answer, but then again they may not.  However, something needs to be done because it is becoming ever so clear that all is not well in Europe.

Disclosure: None

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