Domestic Sales Lag

International Revenue Buoys Profit for Some Companies

 

 

As first-quarter earnings get rolling, it's becoming clear that those companies most reliant on domestic sales are lagging their more globally diverse rivals. U.S. consumer spending—the growth driver of the world's largest economy—remains a lingering concern for corporate America.

 

Domestically, consumer spending is buffeted by high unemployment, stagnant wages and a weak housing market. That has meant smoother sailing abroad for some businesses with strong international brands and operations.

 

Yum Brands Inc., for instance, said on Wednesday that the growing middle class in emerging markets is its biggest opportunity for growth. In China, where it operates more than 3,500 KFC and Pizza Hut restaurants, sales at stores open at least a year jumped 4% in its first quarter. In contrast, domestic same-store sales declined 1%. "In the U.S.," Chief Financial Officer Richard Carucci said last week, "we continue to battle high unemployment and an industry focused on value."

 

Industrial giants such as Caterpillar Inc. have long been linked to "decoupling," the notion that the global economy can grow even amid a U.S. recession. Caterpillar Chief Executive Jim Owens last week lent credence to the view, saying it expects its heavy-equipment exports to rise 65% this year, bolstered by government stimulus projects around the world.

Of course, it's not all roses for the biggest exporters. Companies including Boeing Co. and General Electric Co. are still struggling with weak world-wide airline and energy markets and lingering financial-markets turmoil.

 

"A lot of the orders are coming from outside the United States right now," GE CEO Jeffrey Immelt said last week. The company's industrial businesses (excluding its media properties) saw profits slide 4%, and GE Capital's operating earnings were down 41%.

 

And oil-field-services supplier Halliburton Co. posted a 45% first-quarter earnings slide, mainly on a drop in its international operations. U.S. natural-gas producers were a welcome boost to its sluggish international operations.

 

The share of international sales among U.S. companies is rising, which should help this year. In 2008, the latest year for which full data were available, international revenue accounted for about 48% of sales for member companies in the S&P 500, compared with 43.6% in 2006. And last year was significantly better for these companies than 2008; for the year, earnings rose 244%.

 

Those companies with less exposure to overseas markets didn't fare as well. Private manufacturers, to give one example, saw sales slide 12.5% and net profit margin growth ease to 3.4% from 4.2% in 2008, according to financial data provider Sageworks Inc. And while it can't all be attributed to access to overseas markets, it's clear some large companies are getting a boost that smaller ones aren't.

 

United Parcel Service Inc. raised hopes for others with its preliminary first-quarter results. The shipper, which reports April 27, expects to post strong profit growth on a big surge in international shipping, with daily volumes up 18% over a year ago. U.S. volume rose less than 1%.

 

Still, even with a boost from overseas operations, corporate America will be hamstrung until the U.S. consumer returns.