I was looking through PR Newswire the other day and spotted a press release from S&P highlighting a research article on global sales data for S&P 500 companies. I decided to take a look. The reading is a little dry, but I’m glad I did. Here’s why:
1. stuff I sort of knew, but couldn’t have told you the details about
a. Today the US accounts for 16.8% of the world’s GDP, calculated on a purchasing power parity basis. I just wrote about this a short time ago, so that’s not the surprise. But although I knew the US share of world output was shrinking, I didn’t realize that at the end of 2003, the US accounted for 29.6% of the world’s economic value generation.
Wow. What a drop! Of course, the US economy has expanded over the past six years–but China and other developing countries have made enormous strides in closing the size gap. If we look at this from a relative market share perspective, the US would have been 50% bigger than its nearest rival. Now it’s one of three roughly equal economic groups–NAFTA, the EU and the BRICs. Within ten years, as I’ve pointed out in a previous post, the US will most likely be in third place in world economic rankings, behind #1 China and #2 the EU.
b. The estimates of foreign sales that the S&P produces is just that, an estimate, and is based on reporting data from 250 of the 500 companies in the index.
S&P has decided to discard data from companies that have either less than 15% of total sales outside the US, or more than 85%. That eliminates 72 companies. Of the ten firms with over 85% international sales, seven are IT firms.
The remaining 178 don’t report numbers broken out by region of the world. Some have graphs or charts, some have nothing. Of the firms reporting only US and foreign, the largest (by foreign sales) are really big names: HQP, IBM, PG, ADM, MSFT, DELL AIG, COP, CAT, AAPL, F, DOW, PEP and AMZN.
I can understand that there are issues of keeping data from competitors, as well as transfer pricing and tax planning considerations, but these firms can surely reveal to shareholders more than US vs. non-US.
2. where the growth in foreign sales is coming from
These are the foreign sales by sector of the S&P as of yearend 2009 (2008 for financials and utilities) as a percent of total sales, and the growth rate of foreign sales over the past six years:
S&P 46.6% of sales, + 11.3% since 2003
IT 56.0% of sales, + 6%
Utilities 52.2%, flat
Materials 52.1% of sales, +13%
Healthcare 47.1% of sales, +8%
Staples 46.6% of sales, +35%
Industrials 44.2% of sales, up 9.8%
Energy 43.7% of sales, -14%
Consumer discretionary 42.4% of sales, +22.7%
Financials 34.1% of sales, +19.5%
Telecom insufficient disclosure
It’s interesting to note that the fastest diversifiers away from the US over the past six years have been consumer companies. Presumably they have been propelled by a combination of he maturing of the US market and strong growth prospects in emerging economies. Staples have risen from being the sector with the lowest percentage of foreign sales, ex financials, to a first division status.
Energy is conspicuous in its sharp drop in percentage of foreign sales. I presume, but don’t know, that this is not a deliberate choice but instead a function of foreign sovereign production sharing agreements, which typically call for a decreasing percentage of production to go to the developer of a field as prices rise.
The level of foreign sales doesn’t seem to be a differentiating factor among sectors, since almost all have large foreign exposure. But the rate of growth does seem to be, if the consumer-related sectors are any indication. Given the strongly defensive nature of the market at present, it’s difficult to draw strong conclusions. As the market rebounds, however, I think it will be important to watch stock performance both vs. the level and the growth of foreign sales. My guess is that growth will be the more significant indicator.