The U.S. economy is still recovering in the first quarter, with a persistently high unemployment rate, mixed housing data, and a tight credit environment. However, in the first three months of this year, major U.S. corporations have performed exceptionally well. So, who should these companies and their shareholders thank?
Europe is struggling with a debt crisis, and the economic recovery in the U.S. has been intermittent. In this context, the sales and profits of major multinational companies in the U.S. have largely benefited from strong purchasing power in other regions of the world. Heavy industry companies like Caterpillar Inc., technology leaders like Intel, and global consumer goods companies and industry leaders like 3M have all delivered better-than-expected performance in the first fiscal quarter, much to the delight of investors, with their profit growth primarily coming from overseas markets, especially the Asia-Pacific region.
U.S. companies have not just started relying on overseas markets for revenue; however, with the recent underperformance of some established economic powers, the contribution from overseas markets has become increasingly prominent. Ed Yardeni, president and chief economist of investment strategy firm Yardeni Research, stated that this shift has occurred over the past decade. He noted that currently, the growth rate of U.S. exports to emerging economies exceeds that of exports to Japan and Western Europe, whereas not long ago, most U.S. export goods were still sent to developed economies and mature markets.
Yardeni mentioned that in the process of global endogenous growth, technology stocks are among the biggest beneficiaries. On April 13, Intel reported first-quarter revenues of $10.3 billion and a net profit of $2.4 billion, or $0.43 per share. 82% of the company's revenue comes from markets outside the U.S., with 57%, or $5.9 billion, coming from the Asia-Pacific region, representing a year-on-year growth of 61%.
In the global revenue growth of various companies, demand from Asia is a significant factor; however, not every Asian country will continue to expand at the same pace in the future. Jeffrey Kleintop, chief market strategist at LPL Financial, stated that in fact, since most demand comes from China, the profit growth in certain sectors in the Asia-Pacific region may slow down slightly.
Kleintop discussed the construction equipment manufacturer Caterpillar. The company achieved an operating profit of $0.50 per share in the first fiscal quarter, far exceeding Wall Street analysts' expectations of $0.39 per share, completely reversing the loss of $0.19 per share from the same period last year. Growth in business from Asia and Latin America encouraged the company to raise its annual profit forecast from the previous $2.50 per share to $2.50-$3.25 per share.
Kleintop noted that clearly, Asia has created excellent results for Caterpillar, with growth in the Asian market around 40%, while the U.S. market shrank by about 15%. However, if China decides to slow down its economic growth (currently, China's GDP growth rate is about 12%), it could also slow Caterpillar's growth; China's cooling measures have already targeted construction loans, so some capital goods produced in the U.S. may also face a slowdown in growth.
Meanwhile, other companies like 3M are also shifting their focus to emerging markets. If this situation were to occur ten years ago, it would have been hard to believe. 3M's performance report released on April 27 showed earnings of $1.29 per share, an increase of $0.74 year-on-year.
Analyst Nicholas Heymann from investment research firm Sterne Agee estimated that emerging markets account for about 29% of 3M's quarterly sales revenue. Heymann stated that the 47% growth in sales revenue from emerging markets is "surprising" and analyzed the reasons behind it.
He wrote that by "localizing" products to perfectly meet the needs of each region's emerging markets, 3M's products can indeed be tailored to outcompete local competitors' products.
Kleintop stated that the significant growth in sales revenue from emerging markets is less attributable to these economies themselves and more to the prices of the raw materials and energy they require.
He noted that the profit growth of S&P 500 companies is clearly largely driven by international markets, but it is also significantly influenced by energy and commodity prices. He pointed out that the quarterly profits in the materials sector increased by 187% compared to the same period last year, and profits in the energy sector grew by 150%, which certainly reflects global demand but is also influenced by commodity prices.
Yardeni stated that top-tier blue-chip companies, especially in the industrial and technology sectors, are undergoing a globalization transformation, making it easier for U.S. investors to share in the prosperity, although they should also remain somewhat cautious.
Kleintop emphasized that the profits of U.S. companies are increasingly coming from overseas markets, which is very noteworthy. He said that investors should recognize that they do not need to invest directly in emerging markets; U.S. companies are already doing that for them.