The U.S. economy was still recovering during the first quarter. The unemployment rate remained elevated. Housing data remained mixed. And credit remained fairly tight. Yet, large U.S. companies appear to have performed particularly well during the first three months of the year, so who should they and their shareholders be thanking?
While Europe teeters amid a debt crisis and the domestic recovery starts and stops, major U.S. multinationals are recording sales and earnings growth largely on the buying power of the rest of the world. Heavy industrial names like Caterpillar (CAT), technology leaders such as Intel (INTC), and global consumer product and industrial leaders like 3M (MMM) have all made investors happy with better-than-expected first-quarter earnings results, with most of their profit growth coming from overseas, especially the Pacific.
U.S. companies bolstering their revenues with sales abroad is not new, but the role these markets are playing has expanded recently as more established economics have buckled. Ed Yardeni, president and chief economist of Yardeni Research, says this polar shift occurred over the last decade. “What we’re seeing is that [growth in U.S.] exports to these emerging economies now exceeds exports to Japan and Western Europe,” he says. “It wasn’t that long ago that the bulk of exports was going to developed economies and mature markets.”
Technology stocks have been among the big beneficiaries of organic global growth, he says. Intel, which on April 13 reported first-quarter net income of $2.4 billion, or 43 cents a share, on revenue of $10.3 billion, got 82% of its revenue from outside the Americas region. About $5.9 billion, or 57%, came from the Asia Pacific region, up 61% over the same period last year.
Asian demand is a huge factor in global growth, but not every nation within the region is poised for the same continued expansion. In fact, because China is the main source of that demand, certain sectors could see a bit of a slowdown in their earnings growth within the region, LPL Financial chief market strategist Jeffrey Kleintop says.
“Look at Caterpillar,” he says, pointing to the construction equipment maker, which bulldozed its way to an operating profit of 50 cents a share, walloping Wall Street’s consensus estimate of 39 cents a share and besting last year’s loss of 19 cents a share. Growth in Asia and Latin America spurred the company to boost its profit outlook to between $2.50 and $3.25 a share for the year, up from $2.50 a share in its earlier projections.
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