(Philip Van Doorn) The main theme in disappointing earnings reports this week for large U.S. companies is damage from the decline of the euro. Election results in Greece are heaping additional pressure on the common currency.
Three weeks ago, we published a list of 15 European companies benefiting from a weak euro, helped by high levels of exports to the U.S.
The weakening of the euro EURUSD, -0.27% and strengthening of the dollar reflect the much stronger U.S. economy, as well as the epic drop in crude oil CLH5, +7.46% prices. That is a perfect recipe for European companies that export goods to U.S. customers, but is also painful for U.S. companies that sell their wares in Europe.
Even a small disappointment in quarterly earnings results or guidance can lead to a strong reaction among investors. Shares of Microsoft Inc. MSFT, -3.83% for example, fell 9% Tuesday, following several downgrades to the stock by sell-side analysts. The software company’s quarterly earnings met analysts’ expectations, even thoughcommercial licensing revenue declined.
Investors were dismayed with the company’s sales outlook, and the effect of the rising dollar on international customers was partly responsible. Microsoft CFO Amy Hood said she expected “FX [foreign exchange] headwinds” to be “in place for the reminder of our fiscal year,” which ends June 30. Hood also said that in the company’s Devices and Consumer division, “revenue guidance includes approximately 4 [percentage] points of drag from FX.”
Caterpillar Inc. CAT, -0.04% saw its stock slide as 7%, after the construction- and mining-equipment maker said fourth-quarter sales slip 1% from a year earlier, and that the drop was “primarily due to currency impacts from the weakening of the euro and Japanese yen.” The company also revealed an outlook for 2015, with sales expected to total roughly $50 billion, far short of the $54.8 billion consensus estimate among analysts polled by FactSet.
United Technologies Corp. UT, -0.74% said on Tuesday that it expected earnings per share for 2015 to range from $6.85 to $7.05 on revenue ranging from $65 billion to $66 billion. Those figures were lowered from the company’s previous 2015 EPS outlook of $7 to $7.20, and previous revenue outlook of $66 billion to $67 billion. The company cited “the continuing strengthening of the U.S. dollar, as well as [an] additional pension discount-rate headwind.”
We thought it would be useful to identify which U.S. companies might be facing the worst pain this year from the rising dollar and declining euro. One of the difficulties in putting this data together is that companies do not report their geographic revenue numbers uniformly. Among the 472 U.S. companies included in the S&P 500 IndexSPX, -1.30% only about a third report segment sales data for Europe, or for Europe combined with Africa and/or the Middle East.
So we have prepared two lists, using the most recently available sales data available from FactSet. For most of the companies, the numbers reflect 2013 sales, because full-year results for 2014 aren’t yet available.
Here are the 15 S&P 500 companies based in the U.S. that derive more than 35% of their revenue from Europe:
|Company||Ticker||Industry||Total return – YTD through Jan. 26||Total return – 2014||% annual sales from Europe or Europe, the Middle East and Africa|
|Coca-Cola Enterprises Inc.||CCE,-1.96%||Beverages: Non-alcoholic||-2%||2%||100%|
|Philip Morris International Inc.||PM,-1.21%||Tobacco||2%||-2%||56%|
|Molson Coors Brewing Co. Class B||TAP,-2.69%||Beverages: Alcoholic||5%||36%||51%|
|Harman International Business Industries Inc.||HAR,+3.70%||Electronics/ Appliances||-4%||32%||50%|
|Flowserve Corp.||FLS,-0.15%||Industrial Machinery||-7%||-23%||42%|
|Brown-Forman Corp. Class B||BF.B,-1.74%||Beverages: Alcoholic||5%||18%||42%|
|Owens-Illinois Inc.||OI,+1.30%||Containers/ Packaging||-13%||-25%||40%|
|Mondelez International Inc. Class A||MDLZ,-1.40%||Food: Major Diversified||1%||5%||40%|
|BorgWarner Inc.||BWA,-1.26%||Auto Parts: OEM||0%||-1%||39%|
|Invesco Ltd.||IVZ,-2.75%||Investment Managers||-5%||11%||39%|
|Estee Lauder Co. Class A||EL,-1.92%||Household/ Personal Care||-4%||2%||38%|
|V.F. Corp.||VFC,-2.83%||Apparel/ Footwear||-5%||22%||38%|
|Autodesk Inc.||ADSK,-2.45%||Packaged Software||-3%||19%||37%|
|Xylem Inc.||XYL,-0.18%||Industrial Machinery||-8%||12%||36%|
To identify more companies that may be in danger, here’s a list of companies with the highest share of sales from outside the United States, or the U.S. and Canada, that weren’t on the first list:
|Company||Ticker||Industry||Total return – YTD through Jan. 26||Total return – 2014||% annual sales from outside the United States, or the U.S. and Canada|
|Qualcomm Inc.||QCOM,-1.93%||Telecommunications Equipment||-2%||2%||99%|
|Broadcom Corp. Class A||BRCM,+2.72%||Semiconductors||-3%||48%||96%|
|Diamond Offshore Drilling Inc.||DO,+2.60%||Contract Drilling||-11%||-30%||89%|
|Texas Instruments Inc.||TXN,-2.23%||Semiconductors||3%||25%||87%|
|SanDisk Corp.||SNDK,-2.01%||Electronic Components||-18%||41%||87%|
|Lam Research Corp.||LRCX,-4.29%||Electronic Production Equipment||2%||47%||86%|
|Avon Products Co.||AVP,-2.03%||Household/ Personal Care||-13%||-44%||85%|
|Micron Technology Corp.||MU,-1.50%||Semiconductors||-11%||61%||84%|
|Microchip Tech Inc.||MCHP,-1.64%||Semiconductors||4%||4%||81%|
|Western Digital Corp.||WDC,-3.79%||Computer Peripherals||-9%||34%||80%|
|Applied Materials Inc.||AMAT,-3.30%||Electronic Production Equipment||-3%||44%||78%|
|Yum Brands Inc.||YUM,-2.68%||Restaurants||2%||-2%||77%|
If you are a long-term investor, the current foreign-exchange worries may not keep you from making a lot of money over the next several years. But traders had better be careful, especially if they hold stocks of companies that provide earnings guidance.