According to a research report from S&P, as much as 46.3% of the revenues in the S&P500 companies come from outside the U.S. At the same time, it’s estimated that half or more of the operating profits originate abroad as well.
Just looking at a small sample of 3 large capitalization stocks illustrates this quite clearly:
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As we can see, Apple already gets as much as 59.3% of its revenues from foreign countries, while we see 45.7% for Microsoft (MSFT) and 43.4% for Intel (INTC). Note that Microsoft’s and Intel’s numbers are understated because of contracts and sales to companies in the United States that incorporate those components in products sold in foreign countries, as well.
This means just one thing: forex fluctuations matter. If they are large from one quarter to the other, they matter even more.
Broadly speaking, the USD gaining value will move both reported revenues and earnings down, because the same revenues and earnings in foreign currency translated into USD will mean fewer USD. Conversely, the USD losing value will move both reported revenues and earnings up, since the same revenues and earnings in foreign currency translated into USD will mean more USD.
Now, “abroad” can be a lot of different places. According to the same S&P report, in 2010 29.1% of sales came from Europe, 13.1% from Asia, and 4.1% from Canada. Since these values are relative to the total sales and not to the foreign component, you can double them to have an approximate estimate of what their share of foreign sales is. This also gives us an idea – you can have a proxy for the change in value of Dollar. That proxy is the US Dollar Index, whose weights are not incredibly far from those calculated shares.
What we can do each quarter is compare how the US Dollar Index did from the previous quarter’s end to the present one, and we’ll have a rough estimate of the impact on revenues and earnings from foreign sources in the S&P 500.
For instance, the U.S. Dollar Index ended the previous quarter (September 30th 2011) at 79.31. Presently, it trades at 78.44, so the USD devalued very slightly from September 30th 2011 (-1.1%). The U.S. Dollar Index can be followed here.
Of course, for such a low variation, no large revenue / earnings impacts are expected. But, if the U. S. Dollar Index devalues much more until the end of December, one would expect a large positive impact on revenues and earnings.