Concerns about the slowdown
As we saw in the previous part, recent macro data show Europe’s slowing economic growth. In the last few months, China—the world’s second-largest economy—had declining exports and auto sales. Globally, investors are concerned. Many large multinational companies depend on the Chinese market’s (FXI) future growth potential. In January, Apple (AAPL) lowered its first-quarter revenue guidance due to its declining Chinese sales.
US companies at risk
General Electric (GE) depends on the European market. In 2018, ~20% of the company’s total revenues came from Europe. Europe was General Electric’s second-largest geographical segment after the US.
Philip Morris International (PM) might be impacted by weakness in the European economy. In 2018, the European Union accounted for ~31% of the company’s total revenues.
Coca-Cola (KO), Warren Buffett’s favorite US beverage company, has high exposure to the European market. Last year, ~23% of Coca-Cola’s net operating revenues came from its Europe, the Middle East, and Africa segment. At the end of the December quarter, Berkshire Hathaway (BRK-B) owned ~400 million Coca-Cola shares.
Many other large US companies (SPY) (QQQ) including Abbott Laboratories (ABT), McDonald’s (MCD), DuPont (DD), Ford (F), and Honeywell (HON) also generate a large portion of their revenues from the European market.
A potential slowdown in the European economy, as indicated by the recent economic data, could hurt these companies’ future earnings growth.