This week, currency risk management software vendor FiREapps released its quarterly report on the impact of foreign exchange (FX) on corporate earnings. The report surveyed Q4/2016 earnings reports from 1,200 large, publicly traded multinationals based in North America and Europe.

Of the 1,200 companies, 296 reported that currency shifts had a negative impact on their earnings in the fourth quarter. Among companies that quantified this effect, the total impact was a reduction in earnings of $10.47 billion. This is less than a third the size of the total currency impact FiREapps quantified a year earlier: $36.85 billion in Q4/2015. The FiREapps report attributes this difference “not necessarily to lower currency volatility, but to the number of companies that appear to have not reported material impacts.” In Q4/2015, 409 companies reported negative currency impacts.

For the 29 percent of North American companies that reported a negative currency impact in Q4/2016, the average effect on earnings per share was $0.04 per share. This is down significantly from Q3/2015 ($0.12/share) and Q4/2015 ($0.07/share), but FiREapps sees best practice as keeping the target currency impact to just $0.01 per share.

“We feel that there are still quite a few companies who do not have this under control,” says Wolfgang Koester, CEO of FiREapps. “There are the 'have' and 'have not' camps. We expect Q1/2017 results to be similar to Q4/2016, but we expect increased volatility in Q2 and through the European elections.”

The currencies referenced most frequently by North American companies as impacting their bottom line were the British pound, the euro, the Japanese yen, the Chinese yuan, the Brazilian real, and the Canadian dollar.

Among European companies, only 15 percent reported a negative currency impact on earnings. “The weakening of the euro has been benefiting European corporates, in general,” Koester says. “I find it fascinating that many companies still have headwinds. As the euro weakens, it should give European companies tailwinds. The only explanation is they have exposures outside of Europe, and possibly more dollar expenses than expected.”

Regardless of the reason, currency movements were not top-of-mind for investors and analysts in the fourth quarter. The report notes that among companies for which currency shifts negatively affected earnings, an “exceedingly” small proportion received questions from analysts about those currency impacts during their earnings calls—18 percent in Europe and 23 percent in North America.

Instant Insights /

Currency Volatility Costs Companies over $10 Billion in Q4/2016

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