S&P 500 Foreign Sales – Asia Continues Up, As Europe Continues Down

S&P Dow Jones Indices released their foreign sales reports today (bit.ly/1eGKVbf ). The top-line items are that foreign sales increased (46.6% from 46.1%), Asian sales continued to grow as European sales continued to decline, and S&P 500 issues reversed their income tax payments and sent more to Washington in 2012 than they sent abroad (51.2% in 2012 compared to 45.3% in 2011). The bottom-line item, however, is taxes. There is battle brewing over who should pay what, and I believe that battle will emulate the health care debate, and be just as divisive. Corporations pay what is required, and if there is a legal way to reduce their payment, they will take it, and rightfully so (I feel). The issue is the rules, and that is where we should be focused on. Fairness, economic implications, and social policy all have a part in the rules. It would be nice to believe that when congress returns they will focus in on those issues, but with all due respect to my compliance people – I fear that past performance will be indicative of future returns.

S&P 500 sales:
In 2012, European sales declined to 9.7% of all S&P 500 sales, down from 11.1% in 2011 and 13.5% in 2010
U.K. representation declined to 1.7% from 2.4% in 2011
European ex-U.K. sales declined to 8.0%, from 8.7% in 2011 and 12.0% in 2010
Asian sales increased to 7.5% of all sales, from 7.2% in 2011 and 6.1% in 2010
Canadian sales declined to 4.1% of all sales from 4.3% in 2011

Information technology continued to be the most successful and exposed sector in terms of foreign sales, with 58.3% of its declared sales being foreign
The sector represents 16.2% of all U.S. foreign sales, down from 19.0% in 2011

S&P 500 companies reversed their payments and sent more money to Washington for income taxes than they did to foreign governments
Payments to Washington increased 24.2% to $145.8 billion, as payments abroad declined 1.8% to $139.1 billion
51.2% of declared income taxes were paid to the U.S. and 48.8% were paid to foreign governments

A slight uptick in the companies reporting foreign sales data was noted, however, almost half of the S&P 500 issues still do not report sufficient information to facilitate producing a complete report on global sales.

For the S&P 500, 46.6% of all sales are estimated to have been produced and sold outside of the U.S. in 2012, compared to 46.1% in 2011 and 46.3% in 2010.

At this point it is not just about tax rates and credits, but in what domain the sales and profits are registered in. Tax policy has now become a major issue with the public debate expected to grow substantially, emulating the levels and political turmoil which surrounded the health care debate.

While European sales are down, they are still a major component of U.S. sales, with their growth expectations having now been scaled back. Asian sales are increasing, and just as relevant is the production which is done there and imported back to the U.S. The Heartland of America (manufacturing) is returning, with the question being how much can it grow given U.S. economic and social costs, as companies continue to cut-costs and have difficulties passing along higher costs. Retail issues show the impact quicker to foreign sales and currency, as consumers can quickly decide to change their spending habits (COH, TIF, MCD); decision for major purchases, such as equipment (CAT) can take months to decide or change.

An upturn after last year’s tick down, but Asia continues to increase as Europe continues to decrease.

IT remains as the leader in foreign sales, with Energy rebounding.

Uncle Sam became a majority holder in income tax receipts – I expect tax policy to become the key issue later this year, emulating the health care turmoil and debate.

Using the current membership (proforma), a stronger gain was posted in foreign sales.

An initial review of the data shows that S&P MidCap 400 issues have less exposure to foreign sales than large-cap issues, with S&P SmallCap 600 issues having even less. Sector variance showed that mid- and small-cap issues had slightly higher concentration in Health Care and less in Information Technology and Finance. Top-line foreign sales exposure seems to reduce with size, but bottom-line income may be a different story.  Large-caps may be able to control more of their fate through ownership, joint ventures and the ability to hedge currencies to protect costs.  Smaller-caps appear to have to go with the flow more – so if they are currently importing component parts from Japan, they are saving a few cents. I’ll put together a report later in the month.

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