John Butters, Senior Earnings Analyst at FactSet Research, recently provided some key insights into the Q1 2023 performance of S&P 500 companies, specifically in relation to their geographic revenue exposure. The weaker U.S. dollar in recent months led him to question whether companies with higher international revenue exposure were reporting better year-on-year earnings and revenues compared to those with more domestic exposure. He concluded that this was not the case.
Utilizing FactSet's Geographic Revenue Exposure data, Butters divided the S&P 500 index into two groups for analysis. One group comprised companies that generate over half of their sales domestically, while the other was made up of firms with over 50% of sales originating outside the U.S. Aggregate earnings and revenue growth rates were then calculated for both groups.
According to Butters, the blended earnings decline for the S&P 500 in Q1 2023 stood at -2.2%. Companies with more than 50% of sales inside the U.S. reported a blended earnings growth rate of 2.7%. However, their counterparts, companies with more than 50% of sales outside the U.S., recorded a more significant blended earnings decline of -10.2%.
Revenue growth rates told a similar story. The S&P 500's blended revenue growth rate for Q1 2023 was 3.9%. Companies with domestic sales exceeding 50% reported a 6.1% blended revenue growth rate, while those with a majority of sales outside the U.S. saw a blended revenue decline of -2.1%.
Upon examining the reasons behind this underperformance, Butters identified the Health Care and Information Technology sectors as the main contributors to the declines in both earnings and revenues for companies with higher international revenue exposure. Specifically, he named Intel, Moderna, and Pfizer as the largest contributors to these declines, as all three reported over 20% year-on-year decreases in earnings and revenues for Q1 2023. Each of these companies generates a substantial proportion of their revenues outside the U.S. If these three were excluded, the blended earnings and revenue decline rates for companies with more international exposure would improve substantially.
On the other hand, the Consumer Discretionary sector, with Amazon.com as the leading contributor, drove the earnings growth for companies with greater domestic revenue exposure. Amazon's Q1 2023 EPS of $0.31, compared to -$0.38 in Q1 2022, had a significant positive impact. The company generates nearly 70% of its revenues within the U.S. Excluding Amazon, the blended earnings growth rate for domestically focused companies would drop to 0.2% from 2.7%.
In conclusion, Butters' analysis reveals an intriguing trend: despite a weaker U.S. dollar, S&P 500 companies with greater international revenue exposure reported lower earnings and revenues for Q1 2023 compared to those with more domestic revenue exposure. Factors behind this include significant declines from large companies such as Intel, Moderna, and Pfizer. Conversely, companies like Amazon boosted earnings growth for domestically focused firms.
Please note that this analysis is for informational purposes only and is not legal, tax, or investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequences relating directly or indirectly to any action or inaction taken based on the information contained in this summary.
Footnotes:
1 Adapted from source: Butters, John. "S&P 500 Companies With More International Exposure Reporting Revenue Decline for Q1." 8 May. 2023, insight.factset.com/sp-500-companies-with-more-international-exposure-reporting-revenue-decline-for-q1
2 Photo by Nicholas Cappello on Unsplash
