Earnings season is well underway and so far investors are pleasantly surprised with the number of companies that have beat expectations. The second quarter has already featured upbeat announcements from the financial sector and some of the tech names.
However, it's becoming more apparent that Brexit is creating a layer of uncertainty that will impact second half earnings.
The surprise vote has pushed down the pound and euro to levels that will pressure revenue growth for the remainder of the year. Earnings expectations have also started to trend downward for companies with high exposure to Europe, such as Coca-Cola European Partners, Priceline, Mondelez, McDonald's, and Carnival Corporation, all of which generate 30 percent or more of total revenues from Europe.
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Among these stocks, Coca-Cola European Partners — the bottling company formerly known as Coca-Cola Enterprises — is the most prone to British and European volatility. The enterprise brand produces and manufactures products for European markets and gets 100 percent of revenues from the continent.
The bottler's earnings have been under considerable pressure in recent years notwithstanding Brexit. Last quarter, volumes decreased 5 percent in Great Britain and 3.5 percent in mainland Europe due to difficult macroeconomic trends.
Post-Brexit currency headwinds are expected to exacerbate these issues moving forward. Earnings estimates for the second quarter have remained roughly unchanged over the last three months, but expectations for the second half of 2016 have steadily moved lower.
McDonald's has the largest exposure to Europe among U.S.-listed restaurants. Europe currently accounts for 37 percent of total revenue while 9 percent of sales come from the U.K.
Same-store sales are expected to drop for the upcoming quarter amid a broader consumer pullback, currency fluctuations, and weak economic conditions. The Estimize community has lowered its revenue target to reflect the increasing uncertainty.
Mondelez has just as much at stake. The snack company generates more than a third of its $30 billion in annual sales from Europe.
The United Kingdom is one of Mondelez's top markets there. The key to its success is Cadbury, the top-selling chocolate provider in Britain. Last quarter the snack giant saw sales fall 13.5 percent, of which Mondelez chalked up 12.6 percent to exchange rates.
The travel industry is also feeling the effects of Brexit. Despite strong earnings from United Airlines this week, the air carrier, along with Delta, has cut flights to the U.K. citing Brexit concerns.
Cruise liners have been just as concerned. The Brexit vote came just ahead of Carnival's second quarter earnings. About 25 percent of its passengers come from continental Europe. With greater uncertainty, consumers are typically less willing to spend. The cruise operator was among the first U.S. companies to flag Brexit as a risk to earnings.
The ripple effect has even reached online travel company Priceline. The operator of online booking websites currently generates more than two-thirds of its revenue from Europe, far more than Expedia or TripAdvisor. The company is still expected to report 15 percent revenue growth this quarter, according to the Estimize consensus data, but estimates have come down considerably as the dollar picks up pace.
As more companies reference the impact the event will have on future earnings, we will begin to get a clearer picture of how the second half of the year will stack up.
How do you think these names will report? Be included in the Estimize consensus by contributing your estimates here.