From IBM (IBM) to Harley Davidson (HOG). From Proctor & Gamble (PG) to General Motors (GM). The list of companies citing a strong dollar as an earnings headwind seems to grow by the day.
While there is no denying the dollar is stronger now than in any quarter in recent memory, is it a worthy “excuse” for companies who aren’t reporting the kind of earnings Wall Street is looking for?
“It's totally legit,” says Monica Mehta of Seventh Capital. “If you look at the S&P 500, 45% of the sales for the companies in the S&P 500 as a broad group come from overseas. So when you have a strong dollar you could be kicking butt in sales like Nike (NKE)...but that actually translates to negative top line growth when you take into account the strong dollar.”
For companies that offer products abroad a strong dollar can make the cost to consumers rise which leads to lower sales. Then, whatever they do sell in local currency gets hammered by exchange rates when the money is repatriated.
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Excuses, both legitimate and otherwise are nothing new to earnings season. A rough winter can crimp the style of retailers, airlines or any number of businesses. Under Armour cited the port strike in Long beach, California. But the dollar is different.
“All these other quarters the dollar is going the other way you got a huge leverage. You got a multiplier effect off the currency but right now you're getting killed,” says Yahoo Finance Editor in Chief Andy Serwer. Referring to S&P 500 companies Serwer notes “if you get 50% of your sales overseas your net is down 10%. If you get more than 50% domestically you're flat for the quarter.”
While domestic performance can be a decent barometer for the overall success of a company Metha notes “American companies aren't American anymore. That's the bottom line.”
Here is a sampling of some companies who have blamed the strong dollar in their earnings reports and conference calls:
Facebook (FB) - "The general strengthening of the U.S. dollar in the past year had an unfavorable impact on our revenue. Had foreign exchange rates remained constant with Q1 2014 levels, our total revenue this quarter would have been approximately $190 million."
Stanley Black & Decker (SWK) - "Clearly, this management team is executing in a high level despite numerous external obstacles with the biggest being the strong dollar."
Travelzoo (TZOO) - "Our revenue for the quarter was $36.5 million, down 9% year-over-year primarily due to declines in Local Deals and Getaways, as well as the negative impact of the strong dollar on our European revenues."
Delta (DAL) - "While the strong dollar is creating a $600 million headwind for our international revenues, it is also a factor in keeping fuel prices down, which will contribute over $2 billion in gross savings year-on-year in 2015."
Levi Strauss & Co. - "As anticipated, currency headwinds are indeed having a significant impact on our reported results. We are taking appropriate actions to mitigate as much of the impact as possible..."
Tiffany (TIF) - "We expect to see a continuation of that substantial headwind from the strong dollar in 2015."
Caterpillar (CAT) - "Sales and revenues were $12.7 billion, and that was about 4% less than the $13.2 billion that we had in the first quarter last year. $342 million of that decline in sales was a result of the stronger dollar."
The Hershey Co. (HSY) - "So there are a couple of our export markets where the dollar is making the product quite expensive. Example could be an export market like a Japan, obviously, which they're actually in quantitative easing, so their currency is going the other way."
3M (MMM) - "The rising U.S. dollar negatively impacted revenues and profits offset in part by hedging gains."
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