Europe's Economy and U.S. Earnings

Date: 2015-10-07; view: 531.

The latest numbers may be just noise, with results near zero, but what provides a clear signal is U.S. corporate earnings. American companies continue to feel the pain from a slow- to no-growth Europe.

For example, Ford Motor Co. (NYSE/F) sales in Europe have remained unchanged from 18.6 million units sold, in 2012, to the same total in 2014. In fact, the only region of growth for Ford has come from North America and China. (Source: Ford 2014 Annual Report, February 6, 2015.)

Another American company struggling in Europe is McDonalds Corp. (NYSE/MCD). The hamburger chain booked $7.85 billion of sales in Europe during 2012. Don't hold your breath, though; McDonalds generated roughly the same amount in 2014—$7.81 billion. (Source: McDonalds 2014 Annual Report, March 1, 2015.)

Yet, another company struggling in Europe is General Electric Company (NYSE/GE). The company, which manufactures and sells everything from aircraft engines to transformers and microwaves, earned $26.7 billion in Europe during 2012. Two years down the road from then, General Electric only generated $25.3 billion in sales out of Europe.

When looking at all the S&P 500 companies, about 13% of total sales come from Europe. (Source: FactSet, May 8, 2015.)

Clearly a slower Europe will have some effect on U.S. corporate earnings. An optimistic European economic forecast, for 2015 and beyond, will need to materialize in order for the S&P 500 earnings to move higher.