Currency Volatility Took $32 Billion for North American and Europeancompanies

WSJ-Currency volatility ’s blow to corporate earnings and revenue is at its highest level in years— amounting to a total cost of at least $31.7 billion for North American and European companies in the first quarter, up from $20.2 billion in the fourth quarter.

North American and European companies that told investors they struggled with foreign currency on quarterly conference calls reported a 57% increase in hits to sales and earnings from currency movements, according to a study by FiREApps. A foreign exchange risk management company, FiREApps analyzed 1200 conference calls to arrive at the latest figure, which was the highest in years.

The increase even surpassed the hits from currency volatility that companies reported at the height of the European debt crisis in 2012.

Companies are not required to report currency impacts, but frequently choose to explain the impact on their results to investors in quarterly calls. In North America, 279 companies reported currency headwinds, up from 215 in the fourth quarter. In addition, 34 European companies said they were affected, up from 29 in the prior quarter. It can take some companies up to six months to react and change contracts and pricing, according to executive of FiREapps.

DuPont , for example, said on its April conference call that currency volatility and foreign exchange effects cost the company 27 cents a share in the first quarter, on operating earnings of $1.34 a share. Chief Financial Officer Nick Fanadankis said in the call that as the dollar strengthened against the euro, Brazilian real and Japanese yen, the company lost 6 percentage points on consolidated net sales from the previous year. “Currency was and is expected to be a significant headwind in 2015,” he said.

North American companies cited the euro, yen, Russian ruble and Brazilian real as the most impactful currencies, according to FiREapps. The euro fell about 11% against the dollar and yen in the first quarter as the European Central Bank launched a bond purchase to combat deflation.

Wall street analysts are asking companies for more details about their foreign currency strategies.  Nearly three quarters of companies that reported currency impacts faced questions from analysts about their foreign exchange strategy on conference calls.

“The world is just much more international and companies are much more global,” said Wolfgang Koester, FiREapps chief executive. “People are getting hit from all sides.”

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Pramod Baviskar

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