Currency Surprises Hammer Earnings

A strong U.S. dollar and other currency swings are revealing companies' shortcomings in the area of identifying and quantifying foreign-exchange ex...
Katie Kuehner-HebertMarch 17, 2015
Currency Surprises Hammer Earnings

North American and European corporations in 2014 lost $39.54 billion in revenue from foreign exchange swings, according to the FiREapps 2014 Q4 Corporate Earnings Currency Impact Report.

Broken down by region, North American companies reported $27.13 billion in total negative currency impact for 2014 — a 53% increase over 2013, while European companies reported $12.41 billion in negative currency impact, the report said.

Last quarter, the total reported negative currency impact was $20.18 billion for companies in both regions. North American companies “[faced] the largest currency headwinds since the height of the euro crisis, with $18.66 billion in revenue eroded from corporate earnings statements by currency surprises,” according to a press release announcing the FiREapps report. European companies reported $1.52 billion in impact in the fourth quarter.

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“This quarter many corporates who never before reported a currency hit, reported one,” FiREapps said. “Additionally, there was a significant increase in the volume and complexity of questions coming from the analysts and the market, many of which indicate(d) a systematic inability to identify and quantify exposure.”

The percentage of companies fielding analyst questions about currency rose to all-time highs in the fourth quarter, with 63% of affected North American companies and 68% of affected European companies reporting they had to address FX exposure questions from analysts, FiREapps said.

“On the top and bottom line, Q4 was one of the most impacted quarters since we have seen since we began this research in 2011,” FiREapps said.

Fourth-quarter impact to earnings per share in North America averaged 6 cents, nearly twice the 2013-2014 average and more than six times the EPS impact management objective that leading multinationals have set for their FX managers.

A Reuters article Tuesday said that a “slew” of U.S. multinational companies, from DuPont to Procter & Gamble, have reported lower earnings due to the strong U.S. dollar, “and several blue-chip exporters said the situation will get worse if the greenback holds its strength.”

FiREapps analyzes the earnings calls of 1,200 publicly traded North American and European companies. The list is comprised of 846 North American and 354 European corporations. The companies included in the data set are large multinational firms with at least 15% in international revenues in at least two currencies.

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