Earnings reports for U.S. companies including Nike Inc. and United Parcel Service Inc. underscore how executives are going abroad to drive profits as growth in the world’s biggest economy slows.
For Beaverton, Oregon-based Nike, revenue from Asia, Africa and South America for its brand-name products rose by 47 percent in the quarter that ended May 31, compared with 4 percent for North America. At Atlanta-based UPS, shipments in Asia and Europe are helping push up profit expectations for the year.
“With the weak market here, these firms are forced to look for profitability elsewhere and doing it successfully,” said Edward Leamer, director of the Los Angeles-based UCLA Anderson Forecast, which has produced U.S. economic forecasts for 50 years. “What’s likely for the decade ahead is that the economic energy of the globe will be much more concentrated on emerging markets and much less on the U.S.”
Stock markets outside the U.S. have outperformed the Standard & Poor’s 500 Index since June as earnings reassure investors that growth prospects in emerging markets remain intact. No fewer than eight U.S. companies in the past two weeks, including Caterpillar Inc., Citigroup Inc., General Electric Co., and International Business Machines Corp., have said they are optimistic about prospects in Europe, Asia and Latin American countries such as Mexico.
Credit-card data released by New York-based Citigroup on July 16 show purchases by U.S. consumers lagging behind counterparts in Asia and Latin America. Purchases by consumers in North America fell 7 percent during the second quarter from a year earlier, while growing 15 percent in Latin America and 17 percent in Asia.
Nike’s orders for delivery through November also signal emerging market demand will remain strong. Orders for Nike brand athletic footwear and apparel from emerging markets rose 30 percent in the most recent quarter, excluding currency effects, compared with a year earlier. Orders of the Nike brand in China, the company’s second-largest market after North America, rose 16 percent, compared with 7 percent in North America.
UPS’s volume of exports in Asia grew by more than 40 percent during the second quarter, and the package-delivery company is reaching more customers in Vietnam and Malaysia, Chief Executive D. Scott Davis said on a July 22 conference call. Meanwhile, Europe may be shaking off the sovereign-debt crisis that rattled markets this year and is showing “solid” growth in the current quarter, he said.
“Europe has been somewhat of a pleasant surprise,” Davis said. “All of us are guarded about Europe just because of all the unknown, but I think all of us are seeing pretty good business in Europe.”
Davis’s assessment is backed by European Central Bank President Jean-Claude Trichet, who said Europe’s economy is stronger than some investors forecast. “There is a tendency from the outside to be excessively pessimistic” about Europe, the policy maker said during a July 8 press conference in Frankfurt. “The figures don’t confirm this pessimism.”
The U.S. economy grew at a 2.7 percent annual rate in the first quarter, less than previously calculated, reflecting a smaller gain in consumer spending and a bigger trade gap, figures from the Commerce Department showed. It probably grew 2.5 percent in the second quarter, according to the median estimate of economists surveyed by Bloomberg News through 2 p.m. New York time.
Better growth prospects abroad are pushing investors into stock markets overseas. Since June, the Vanguard FTSE All-World Ex-US Index Fund, an exchange-traded fund that tracks developing and emerging markets, has outperformed the SPDR S&P 500 ETF Trust, which represents the S&P 500. The gain reverses about six months where the SPDR S&P 500 ETF Trust outperformed the All-World index, which includes BHP Billiton Ltd. and Siemens AG.
Peoria, Illinois-based Caterpillar on July 22 raised its full-year earnings forecast on higher demand in developing countries for mining, energy and rail equipment.
“World growth is being led by the developing countries of Asia, Latin America, the Middle East, and Africa,” said Mike DeWalt, head of investor relations at Caterpillar, the world’s largest maker of construction equipment.
Shares of UPS rose 52 cents, or 0.8 percent, to close at $63.67 today on the New York Stock Exchange, while Nike climbed $1.18, or 1.7 percent, to $72.74.