The Economy

Currency Volatility Costs Highest In Three Years

Data from FiREapps suggest North American multinationals are struggling to adapt to global currency shifts.
Katie Kuehner-HebertSeptember 23, 2015

North American multinationals in the second quarter suffered the highest negative impact due to currency volatility since the fourth quarter of 2012, according to FiREapps.

The consulting firm reported that the average negative impact per company was $177 million, with 170 companies reporting negative currency impacts, and the average earnings-per-share impact was negative 3 cents. In the first quarter, the average negative impact per North American company was $166 million.

For European companies, the average per-company negative impact was $110 million. The total negative currency impact in the second quarter was $19.49 billion $16.95 billion in North America and $2.54 billion in Europe.

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The data appear to confirm that businesses are struggling to adapt to global currency shifts and devaluations.

“Where volatility during the euro crisis was largely contained to the euro zone, today it is everywhere: in Asia, the Japanese yen, the Vietnamese dong, and the Chinese yuan; in Europe, the Russian ruble, Swiss franc, and the euro; in Latin America, the Brazilian real and Venezuelan bolivar,” FiREapps said.

“Corporates can’t know where volatility will spike next, and as a result, those corporates that don’t manage currency risk across all currency pairs are sustaining elevated negative impacts quarter after quarter,” the firm added.

The drag should continue in the third quarter, with China’s currency devaluation last month likely to weigh down multinationals’ financial results.

The Wall Street Journal cited Kimberly-Clark’s problems with weakening foreign currencies in the second quarter, the multinational’s U.S. dollar sales were cut by about 10% and operating profit was reduced by $80 million. Results were hurt both by currency-translation costs that occur when it reports foreign results in dollars, and currency-transaction losses, which hurt sales.

Jerome Peribere, chief executive of Bubble Wrap maker Sealed Air, told investors last week that currency devaluations, particularly of the Turkish lira, Brazilian real, and Russian ruble, are expected to lower full-year sales by about $800 million.

“A dollar of profit in emerging countries last year is about 75 cents this year,” Peribere said.