Currency Swings Squash Quarterly Earnings

The surging dollar, falling euro and plunging emerging-markets currencies had a record $32 billion negative impact on the earnings of companies in North America and Europe in the first quarter, according to Scottsdale, Arizonabased FiREapps, which helps corporations measure and manage foreign exchange exposure.

“The impact was more significant than anyone expected,” says Wolfgang Koester, CEO of FiREapps. “This isn’t just about the dollar. It is about currency volatility all over
the world.”

During the first quarter, the euro fell 11.3% against the dollar, which was its biggest quarterly drop since the fourth quarter of 1992. The Russian ruble also plunged against the dollar in the first quarter.

The total negative currency impact in the first three months of 2015 on North American and European corporates was 57% higher than in the fourth quarter of 2014, and more than four times the level of the same period a year earlier.

US companies doing business in Latin America were also hit hard by currency depreciations, particularly in Venezuela, where General Motors took a $412 million charge and Ford wrote off $310 million. Clorox, Colgate-Palmolive and Coca-Cola also were affected by the plunging bolivar.

In London, BAE Systems says its earnings were diminished by a sudden rise in the pound early this year. The defense manufacturer repatriates sales in its key US market back to the UK.

The consolidated revenues of McDonald’s fell 11% in the first quarter but were down only 1% in constant currency terms. Procter & Gamble, General Electric, Oracle and American Express all took hits from the strong dollar.

“As long as economies around the world remain weak and central banks there see intervention as a successful stimulus tool, then we should expect to see continued currency volatility,” FiREapps says.

In North America, the industries most impacted by currency swings in the first quarter were electronic instruments and controls, medical equipment and supplies, scientific and technical instruments, biotechnology and drugs, and chemical manufacturing.