Debt crisis calls for detective work
Q: Is there a way to find out how much exposure specific companies have to Europe?
A: French bread and Italian coffee are two good things the U.S. has gotten from Europe. But now, the U.S. is importing a contagion over the European debt crisis, which is leaving a bad taste in investors’ mouths.
For the past three years, whenever stocks are about to enjoy a decent rally, new fears from across the pond have wafted over to spoil things. And just a hint of good news on the last trading day of the second quarter this year, June 29, was enough to spark some enthusiasm, resulting in the biggest percentage gain for stocks in a single day all year. Since when did U.S. investors worry so much about Greek elections and the Spanish economy?
Some investors worry the problems in the eurozone are so serious that there’s no easy fix. A major overhaul is needed, they believe, in order to hold together this important economic region. However, others say Europe isn’t all that critical to U.S. companies and that investors are overreacting. Companies in the Standard & Poor’s 1500 index get less than a quarter of their revenue from Europe.
But there’s good reason to be cautious. For investors who own individual stocks, it’s a good idea to understand how large each company’s exposure is to Europe. If a company gets more than 20% of its revenue from Europe, it’s prudent to keep that in mind and make it part of the analysis on the stock.
Unfortunately, companies don’t usually make looking up this information very easy. You'll need to know how to dive into the company’s financial statements to unearth its geographic breakdown of revenue.
Be forewarned that not all companies break this information down to the same level of detail. And some companies don’t provide any details at all about where they garner most of their revenue.
With that said, most major companies with significant foreign operations at least disclose how much of their revenue, or even earnings, come from outside the U.S. It’s just up to investors to know where to look.
For practice on how to unearth this information, start with General Electric. You’ll want to access the company’s annual report, where all this information is disclosed. You can use the Securities and Exchange Commission’s website to get companies’ annual reports for free.
Once you have the annual report open, search for the keyword “geographic.” Doing so with GE’s report leads investors to a section with the heading, “Geographic Revenues.” Here investors will see GE posted revenue in 2011 of $147.3 billion. Of that, a large chunk, nearly 48%, came from sales in the U.S. Europe accounted for the secondlargest piece of revenue, 20%, or $29.1 billion.
Again, not all companies make finding the percentage of sales from Europe this easy, and more digging might be needed. Other companies might combine their sales from several regions, such as Europe and Asia. But investors who can navigate the annual report should be able to figure out what, if any, detail on European sales is available.