Analysis: U.S. companies blame Europe for earnings warnings

Mon Jul 2, 2012 12:17am EDT
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By Caroline Valetkevitch

NEW YORK (Reuters) - As an increasing number of American companies warn their earnings will fall short of expectations, many are pointing the finger at Europe as the culprit.

As the second-quarter corporate results season gets underway in the next few weeks, the euro zone debt crisis, weak European demand, the euro currency's decline and the impact of it all on the global economic environment, will be front and center.

A Thomson Reuters study of 85 Standard & Poor's 500 companies that have warned investors their earnings would be worse than expected in the quarter shows at least 20 cited Europe specifically, 15 noted currency movements and 12 talked more vaguely about uncertainty due to global economic conditions. Most of the others were not specific or had more unique or isolated problems.

Even the handful of big consumer products companies which are saying that China's slowing economy is starting to hurt their sales can also see the euro zone's hand in it all. Many Chinese factories are being hit by reduced export demand - from Europe.

So while the news may have brightened somewhat at the end of last week because euro zone leaders agreed on a series of crisis-fighting measures, it won't take Europe - where many economies are either in or close to a recession - out of the corporate news headlines in the next few weeks at least.

"Europe is clearly a headwind impacting demand for goods and services," said Kathy Karlic, group vice president at Wilmington Trust Investment Advisors in Buffalo, New York. Wilmington Trust manages $70 billion in assets.

Some 14 percent of all S&P 500 company sales come from Europe alone, according to S&P data.

The overall effect is significant. The number of companies that have said second-quarter results will be worse than forecast outnumbers those who say the picture has brightened by 3.62 to 1 - the most negative it has been in almost 11 years, according to Thomson Reuters data.   Continued...

A logo of HP is seen outside Hewlett-Packard Belgian headquarters in Diegem, near Brussels, January 12, 2010. REUTERS/Thierry Roge