Management Accounting

Strong Dollar Deflates Earnings

Blue chips, including P&G, Dupont, and Pfizer, feel the effects of "unprecedented currency devaluations."
Katie Kuehner-HebertJanuary 27, 2015
Strong Dollar Deflates Earnings

Multinational companies with significant foreign revenue streams are posting reduced earnings as the U.S. dollar surges, according to a Bloomberg story Tuesday.

Procter & Gamble said that net income fell 31%, to $2.37 billion, or 82 cents a share, for its fiscal second quarter ending Dec. 31. Excluding some items, profit was $1.06 a share, below the $1.13 consensus estimate.

“The October-December 2014 quarter was a challenging one with unprecedented currency devaluations,” P&G’s chairman, president and chief executive A.G. Lafley said in a press release. “Virtually every currency in the world devalued versus the U.S. dollar, with the Russian ruble leading the way. While we continue to make steady progress on the strategic transformation of the company—which focuses P&G on about a dozen core categories and 70 to 80 brands, on leading brand growth, on accelerating meaningful product innovation, and increasing productivity savings—the considerable business portfolio, product innovation, and productivity progress was not enough to overcome foreign exchange.”

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Meanwhile, DuPont, Pfizer, and Bristol-Myers Squibb all posted lower-than-expected forecasts in part due to the dollar’s strength, according to Bloomberg. The U.S. Dollar Index rose to the highest since September 2003 yesterday, adding to this year’s 4% gain.

“While 75% of Standard & Poor’s 500 Index companies have beaten analysts’ estimates so far this earnings season as the U.S. economy weathers a slowdown in global growth, the dollar’s advance is making American goods and services more expensive overseas, eroding sales,” Bloomberg writes.

The tech sector is likely the most exposed to the rising dollar because the industry sells most of its products in other countries, Markit analyst Simon Colvin tells Bloomberg. However, some companies such as Honeywell International and 3M are mitigating their exposure with currency hedges.

Source: Bloomberg

Featured image: Thinkstock

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