Global Exposure Fuels S&P 500 Earnings

[Editor’s Note: This was originally published on FactSet.com.]

“Signs of enhanced momentum in the global economy have recently emerged. Global GDP growth has picked up to an annualized rate of over 3.24% since the middle of 2016, with a rebound in industrial production, global trade and investment.” – OECD Global Economic Outlook (June 7)

Coming into the Q2 earnings season, companies in the S&P 500 with higher global exposure were expected to benefit from the tailwinds of a weaker U.S. dollar and higher global GDP growth.

Now that more than 90% of the companies in the index have reported results for Q2, did S&P 500 companies with higher global revenue exposure outperform S&P 500 companies with lower global revenue exposure in terms of earnings growth and sales growth for Q2 2017?

We used FactSet Geographic Revenue Exposure data (based on the most recently reported fiscal year data for each company in the index) to answer this question. For this particular analysis, the index was divided into two groups: companies that generate more than 50% of sales inside the U.S. (less global exposure), and companies that generate less than 50% of sales inside the U.S. (more global exposure).

Aggregate earnings and revenue growth rates were then calculated based on these two groups. The results are listed below.

The blended earnings growth rate for the S&P 500 for Q2 2017 is 10.2%. For companies that generate more than 50% of sales inside the U.S., the blended earnings growth rate is 8.5%. For companies that generate less than 50% of sales inside the U.S., the blended earnings growth rate is 14.0%.

The blended sales growth rate for the S&P 500 for Q2 2017 is 5.1%. For companies that generate more than 50% of sales inside the U.S., the blended sales growth rate is 4.7%. For companies that generate less than 50% of sales inside the U.S., the blended sales growth rate is 6.0%.

What drove the outperformance of S&P 500 companies with higher global revenue exposure? At the sector level, the Information Technology and Energy sectors were the largest contributors to earnings and revenue growth in Q2 for companies with less than 50% of sales inside the U.S.

John Butters is a senior earnings analyst with FactSet Research Systems. Visit FactSet.com/insight to read more and to subscribe to ETF thought leadership from FactSet.