Europe's sluggish economy is already taking a toll on U.S. corporate profits, with some companies starting to report lower fourth-quarter earnings and gloomier forecasts.
Tiffany's stock fell 10 percent last week after the high-end jeweler cut its annual earnings forecast, noting that holiday sales in Europe rose only 1 percent over the year-ago period.
Meanwhile, the Census Bureau said last week that the U.S. trade deficit in November widened to a five-month high as exports dipped about 1 percent from the previous month. Capital Economics blamed a 2.6 percent drop in sales on the eurozone.
Companies in the Standard and Poor's 500 index derive about 14 percent of their sales from Europe, though some depend on the continent for as much as 40 percent of revenue, says S&P senior analyst Howard Silverblatt. Some firms affected:
Aluminum giant Alcoa said sales to Europe fell 16 percent in the fourth quarter, on top of a steeper drop in the third quarter. The company, which relies on Europe for about a quarter of its revenue, said it plans to close or curtail operations at three smelters in Spain and Italy. The slowdown likely reduced per-share earnings by 5 cents to 10 cents and helped lead to a fourth-quarter loss, says analyst David Gagliano of Barclays Capital.
National Instruments, which makes testing gear, cut its fourth-quarter earnings estimate by about 25 percent as the pace of sales growth slowed sharply in Europe. After year-over-year sales in Europe rose by 25 percent in the third quarter, growth slowed to just 3 percent in the fourth quarter. "We just saw a kind of scary drop," COO Alex Davern told analysts on a conference call last week. Analyst Mark Douglass of Longbow Research says the slowdown likely would prompt the company to rein in capital investments.
Baxter International, which makes health care equipment and fluids, said its European sales fell $30 million last year and could drop by as much as $40 million this year as governments reduce health care coverage costs.
Adding to the problem: Europe's weakening economy has hammered the euro, making revenue earned by U.S. firms in Europe worth less when converted into dollars.
Companies that offer lower-price products could feel less impact. McDonald's gets nearly 40 percent of its revenue from Europe, but sales so far "have been extremely resilient," says analyst Mitchell Speiser of Buckingham Research.
European turmoil will likely shave U.S. economic growth by at least half a percent this year as it trims exports and roils stocks, says Diane Swonk, chief economist at Mesirow Financial.
