MARKET SNAPSHOT: 'Brexit' Could Be Yet Another Blow To U.S. Earnings
18 June 2016 - 1:46PM
Dow Jones News
By Wallace Witkowski, MarketWatch
High-exposure U.K. stocks have outperformed S&P 500
recently
Shares of U.S. companies with a higher-than-average reliance on
British sales could face a rude awakening should the U.K. vote to
exit the European Union on Thursday.
Stocks finished the week lower
(http://www.marketwatch.com/story/us-stocks-set-for-choppy-day-as-brexit-debate-is-thrown-into-limbo-2016-06-17)
on so-called Brexit worries and in the wake of a June Federal
Reserve policy meeting that underscored a slower approach to rate
increases
(http://www.marketwatch.com/story/fed-holds-rates-steady-as-more-officials-move-into-one-hike-camp-2016-06-15)
given shaky economic growth. The Dow Jones Industrial Average
declined 1.1% for the week, while the S&P 500 index shed 1.2%,
and the Nasdaq Composite Index fell 1.9%. Both the S&P 500 and
Nasdaq logged a second week of losses.
Another earnings season is less than a month off, with a few
S&P 500 outliers still scheduled to report results and Nike
Inc.'s(NKE) earnings the following week. With an already dismal
four quarters of profit declines on the books, the possibility of
the U.K. leaving the EU adds to the earnings struggles of U.S.
companies. After China, international revenue across the S&P
500 is most exposed to the U.K.
The U.S. accounts for 68.8% of S&P 500 revenue, followed by
China accounting for 4.9%, and then the U.K. with 2.9%, according
to John Butters, senior earnings analyst at FactSet.
The most exposed sectors to the U.K. are energy, tech, and
materials, according to FactSet. Those very same sectors are also
expected to have the worst profit declines for the second quarter
already.
Read:The Brexit vote: Everything you need to know about the
referendum
(http://www.marketwatch.com/story/the-brexit-vote-everything-you-need-to-know-about-the-referendum-2016-06-07)
On a company level, 30 firms in the S&P 500 derive 10% or
more of their revenue from the U.K., according to FactSet data.
The top 10 companies most exposed to the U.K. are Newmont Mining
Corp.(NEM), Molson Coors Brewing Co.(TAP), PPL Corp.(PPL), Willis
Towers Watson PLC (WLTW), Invesco Ltd., BlackRock Inc.(BLK), Apache
Corp.(APA), LKQ Corp.(LKQ), News Corp.(NWS.AU)(NWS.AU), and CBRE
Group Inc. (CBG)
If the "leave" camp prevails, stocks with high revenue exposure
to the U.K. could get a rude awakening seeing they've tended to
outperform the S&P 500 since the referendum vote was first
announced back in February. It's only been recently that polls have
shifted to a majority preference for a "leave" vote
(http://www.marketwatch.com/story/brexit-fears-escalate-as-key-polls-show-lead-for-leave-voters-2016-06-16)
among Britons.
Read: Here's the line in the sand for the S&P 500 if a
Brexit happens
(http://www.marketwatch.com/story/heres-the-line-in-the-sand-for-the-sp-500-if-a-brexit-happens-2016-06-17)
Before the Brexit vote, Federal Reserve Chairwoman Janet Yellen
testifies before the Senate Banking Committee on Tuesday and before
the House Financial Services panel on Wednesday.
Don't expect too much in he way of new information from Yellen,
but the central banker will get a chance to try to salvage the
battered credibility of the Fed, following last week's policy
meeting, said Nicholas Colas, chief market strategist at Convergex,
in a recent note.
"[S]he will have another chance to express her confidence in the
U.S. economy and (perhaps) reinject the notion that the Federal
Reserve is still really, truly, actually going to move on rates
this year," said Colas.
As Colas points out, following last week's FOMC meeting, the
expected probability of a rate increase before the end of the year
dropped to 1 in 4
(http://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html).
Notable earnings reports
Report date Company/ticker (FactSet EPS / revenue estimate)
Mon., May 20 None scheduled
Tues., May 21 FedEx Corp. US:FDX ($3.28 / $12.77 billion) Lennar Corp. US:LEN (87 cents / $2.6 billion) Adobe Systems Inc. US:ADBE (68 cents / $1.4 billion) CarMax Inc. US:KMX (93 cents / $4.22 billion) KB Home US:KBH (14 cents / $753.4 million)
Weds., May 22 Bed Bath & Beyond Inc. US:BBBY (86 cents / $2.78 billion) Red Hat Inc. US:RHT (50 cents / $562.8 million)
Thurs., May 23 Accenture PLC US:ACN ($1.41 / $8.29 billion)
Fri., May 24 Finish Line Inc. US:FINL (22 cents / $450.9 million)
(END) Dow Jones Newswires
June 18, 2016 08:31 ET (12:31 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.