Procter & Gamble Co. and Philip Morris International Inc.found a common culprit for weaker financial results in recentweeks: changes in currency values.

P&G, the world's largest consumer products company, hadinitially been counting on foreign exchange to bolster results thisyear. Instead, Chief Executive Officer Robert McDonald toldinvestors last month it's turned into “a strong headwind” that mayhave cut about $3 billion in revenue and at least $400 million inprofit from previous projections.

The currency blame game is just beginning with second-quarterearnings reports kicking off this week. Members in the Standard& Poor's 500 Index are forecast to end 10 straight quarters ofprofit gains and report a 1.8 percent profit decline on average,according to data compiled by Bloomberg.

CEOs tend to point their fingers at external causes when theycome up short, even if they're given millions in compensation fortheir management prowess, said Jeff Sonnenfeld, a professor at theYale School of Management who lectures on corporate governance.McDonald, who had total compensation of $16.2 million last year,has cut forecasts three times this year and come under fire fromanalysts who fault poor execution for the Cincinnati-basedcompany's market share losses.

“From the perspective of the CEO, good news is their own doingand bad news is an externality,” said Sonnenfeld. “It's Europe andcurrency. It's Obamacare. It's all this horrible uncertainty. Woeis us. The problem is, you often have competitors in the sameindustry and they aren't all suffering the same injury.”

P&G rival Kimberly-Clark Corp. reaffirmed a full-yearforecast for adjusted earnings of $5 to $5.15 a share on April 20.Analysts estimate sales and earnings rose in the second quarter.The company generated about half of its revenue outside NorthAmerica last year, compared with 59 percent for P&G.

Unless they are hedged against the risk of an appreciation ofthe dollar, U.S. companies are taking in less revenue for productssold in places like Brazil, India, Russia and the euro region. Thedollar erased year-to-date losses against most major counterpartsin the second quarter as investors sought the safety of U.S. assetsamid Europe's credit crisis. The euro had its worst period versusthe dollar since the third quarter of 2011, weakening 5.1percent.

“There may be many companies caught flat-footed on this,” saidPaul Edelstein, director of financial economics at IHS GlobalInsight in Lexington, Massachusetts. “The long term hedge has beento protect against a weaker dollar and a stronger euro.”

'Not Excuses'

P&G is focused on its top businesses, innovations anddeveloping markets, as well as its $10 billion cost savingsprogram, said Paul Fox, a company spokesman.

“Headwinds such as currency and commodities are not excuses butare realities we feel are helpful to explain to investors,” Foxsaid. “Since they are out of our control, we are focused on what wecan influence so we can return to stronger growth.”

Some companies have found ways to mitigate the losses. AdobeSystems Inc., which generated about 57 percent of its sales outsidethe U.S. last year, used hedging to cut $10.7 million from apotential $14.5 million reduction in revenue related to currencyfor the fiscal second quarter, Chief Financial Officer Mark Garrettsaid in a June 19 conference call.

Google Inc.'s currency hedging probably helped the companylessen the hit of a stronger dollar in the second quarter, reducingrevenue by 2.1 percent instead of 3.7 percent, said Carlos Kirjner,an analyst at Sanford C. Bernstein & Co., in a July 11 report.The company may still miss sales estimates when it reports nextweek, he said. Jim Prosser, a spokesman for Mountain View,California-based Google, declined to comment.

About 81 percent of Fortune 100 companies report they areactively hedging currency in some way, according to an analysis ofregulatory filings by Fireapps Inc., a Scottsdale, Arizona- basedcompany that makes software to help manage fluctuations.

“Nobody should be surprised by this, that is why they havetreasury departments,” said Fireapps CEO Wolfgang Koester. The CEOneeds to ensure the treasury department has the funds to deal withcurrency issues, “but a lot of the time the treasury departmentisn't given enough money to solve a huge problem.”

Philip Morris Cuts

Philip Morris cited the dollar's strength in cutting itsfull-year earnings forecast to $5.10 to $5.20 a share on June 21,from an April prediction of $5.20 to $5.30. The New York-basedcigarette maker, a spinoff of Altria Group Inc., gets all itsrevenue outside the U.S., including 30 percent from the EuropeanUnion last year.

“It will not come as a shock to you that currency has moved inthe wrong direction since April,” Chairman and Chief ExecutiveOfficer Louis Camilleri told analysts June 21.

One day earlier, PepsiCo Inc. also said headwinds from astronger dollar increased in the second quarter. The Purchase, NewYork-based company gives its forecast on a constant currency basisand anticipates fluctuations will equalize over time. The snack andsoda maker made about half its revenue outside the U.S. lastyear.

“As it relates to currencies, we do hedge transaction to thedegree that we can,” CFO Hugh Johnston said on June 20 during thesame Paris investor conference where P&G cut its forecast.“It's fairly challenging to predict at this point.”

CEOs are paid in part to manage outside factors such as currencyfluctuation. The adjusted average compensation of CEOs in theStandard & Poor's 500 Index rose to $12.9 million in 2011, or380 times the average worker's pay, the AFL-CIO said in an Aprilreport. That's up from $625,000, or 42 times the average worker'spay, in 1980, based on the report.

P&G's McDonald and Philip Morris's Camilleri both made morethan the average CEO in the S&P 500 last year, with Camillerireceiving total compensation of $21.6 million. The companies aretwo of the biggest in the index.

“CEOs are not hired to take blame,” said James Post, a professorat Boston University School of Management who has written aboutgovernance and business ethics. “The board wants a CEO who is goingto proclaim victory, or better, achieve it.”

When a CEO is forced to admit a failure of strategy orexecution, the goal is often to find a unit or another person toblame, Post said.

'So Many Excuses'

P&G's McDonald faced such criticism from Wendy Nicholson, ananalyst at Citigroup Inc. in New York, on an April 27 conferencecall. The owner of Tide and Gillette is scheduled to report fiscalfull-year earnings next month.

“There's so many excuses,” she said. “'Not our fault,competition didn't follow the pricing; not our fault, Venezuelachanged; not our fault, the developed consumer isn't robust.'”

P&G's McDonald responded by saying he would get the rightleaders and programs in place to deliver. The company lost marketshare after raising prices and is now reducing prices in sixcategories, including North American oral care, razor blades anddish care, as well as laundry detergent in the U.S., U.K. andMexico.

“It is my fault,” McDonald said at the time. “I am the CEO ofthe company. I do take responsibility.”

PepsiCo CEO Indra Nooyi also took responsibility in February fordecisions that led to a depressed share price. Management didn't doenough to support the brands, especially in North Americanbeverages, and didn't anticipate commodity volatility in 2010 and2011, she told investors at a meeting in New York.

The propensity of analysts to see any “drop of blood as a reasonto peck a company to death” fuels a reluctance by companies andtheir CEOs to be any more forthcoming than necessary, says ElaineEisenman, dean of executive and enterprise education at BabsonCollege in Wellesley, Massachusetts, and a director at shoeretailer DSW Inc.

“You're in between a rock and a hard place,” she said. “There'sa balance between what investors need to know and what it would benice to know. You don't want to be premature.”

Undoubtedly, fewer CEOs were previously crediting a weak dollarfor helping profits returning to the U.S. from other countries,said Sonnenfeld, the Yale professor.

“If you're walking down the street, and you trip, you think,'Gosh, can't this city pave these streets?'” Sonnenfeld said. “Butif you're watching the person, you think, 'What a clumsy fool.Can't chew gum and walk at the same time.' It depends on whetheryou're the actor or the observer. The CEO is the actor.”

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