Europe is at a precipice, as voters across the continent have shown they are fed up with the existing political order and its prescription of austerity.
France's conservative government, led by Nicolas Sarkozy, was thrown out of power two weeks ago by Francois Hollande's left-leaning Socialist Party. Over the weekend, Angela Merkel's center-right Christian Democratic Union suffered its worst defeat in local elections since World War II. And Greece appears to be headed for a fresh general election, as its fractious political parties seem incapable of forming a coalition government.
For the first time, European leaders are even talking openly about a fissure in the continent's monetary union. Belgium's central-bank president told the Financial Times: "I guess an amicable divorce -- if that was ever needed -- would be possible, but I would still regret it." And his Irish counterpart echoed the sentiment: "Things can happen that are not imagined in the treaties … but [a Greek exit] can be managed. … It is not necessarily fatal, but it is not attractive."
For investors, the significance of such an eventuality cannot be overstated. If the monetary union fractures, an epidemic of currency devaluations will almost certainly ensue, causing American-made goods to increase in price on a relative basis, thereby driving down the continent's demand for them. In the consumer-goods sector specifically, the following five companies will be among those feeling the biggest impact, as they all look to Europe for a considerable portion of their sales.
European Exposure (Percent of Net Sales)
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|Kraft (NYSE: KFT )||25%||$69||Add|
|PepsiCo (NYSE: PEP )||20%||$105||Add|
|Procter & Gamble (NYSE: PG )||20%*||$174||Add|
|Kimberly-Clark (NYSE: KMB )||16%||$31||Add|
|Coca-Cola (NYSE: KO )||13%||$173||Add|
Sources: All geographic sales figures other than Coca-Cola's are from the respective companies' most recently filed annual reports. Coca-Cola's are from the company's most recent quarterly report. Market cap data is from Yahoo! Finance.
*P&G's sales include only Western Europe.
Although all of these companies' revenues are bound to suffer from a decrease in European demand, three of them also have significant operations in growing markets. Coca-Cola, PepsiCo, and Procter & Gamble all have double-digit exposure to either Latin America or Asia. That leaves Kraft and Kimberly-Clark, which aren't as well diversified, as the odd companies out.
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