Currency Headwinds Blowing Strong

Study finds currency fluctuations had negative impact on revenue for more than 25 percent of multinationals, with average 3-cent impact on EPS among affected companies.

Foreign exchange (fx) advisory firm FiREapps analyzed the earnings calls of 800 large multinational companies; each company included in the study makes at least 15 percent of its revenues internationally, in at least two currencies.

Among these businesses, 213—or 27 percent—reported that currency fluctuations had a negative impact on their revenues in the first quarter of 2013. That number is down from Q4/2012, but it’s still much higher than the number of companies reporting currency headwinds in 2011. (See Figure 1.)

The two currencies mentioned most frequently as impacting earnings last quarter were the yen and the Venezuelan bolivar. Eighty-nine companies reported negative impacts from the yen, and 43 reported negative impacts from Latin American currencies, while only 25 reported negative impacts from the euro.

FiREapps study PQJapanese prime minister Shinzo Abe began to devalue the yen shortly after taking office in December 2012. In the six months since, the yen has fallen almost 30 percent relative to the U.S. dollar. “The yen slide has set off a competitive devaluation race to the bottom, as an increasing number of countries have felt forced to get into the currency war,” Koester says. “That’s in order to maintain the relative competitiveness of their exports. One area in which yen devaluation has ignited a competitive devaluation race to the bottom is Latin America.”

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