After doubling in the fourth quarter, the negative impact of swings in foreign-exchange rates on corporate earnings is likely to worsen in the three months ending March 31.
That's the outlook of FiREapps, a Scottsdale, Arizona-based company that advises businesses on reducing the impact of currency volatility.
For the 846 North American companies monitored by FiREapps during the final three months of 2014, the average negative currency impact was 6 cents per share, more than double the average of 2 to 3 cents for the prior two years.
“This volatile era shows the companies that don't have proper risk management practices in place,” said Wolfgang Koester, chief executive at FiREapps “This quarter's reports, which will start in April, will be even worse for some companies.”
The euro and yen were among the top five currencies mentioned by the 1,200 firms globally monitored by FiREapps, in a report Monday. After a broad gain of 11 percent last year, the greenback has strengthened 14 percent versus the euro this year, helping send volatility projected by options last month between the two currencies to the highest since 2012.
Sixty-three percent of companies reporting currency headwinds on fourth-quarter earnings also fielded questions from analysts on the topic during conference calls, the highest rate since FiREapps began tracking them four years ago.
In the fourth quarter, 215 of 846 North American companies' earnings calls monitored by FiREapps mentioned negative impacts from currency swings, up 6.4 percent over the prior three-month period. The aggregated value of the negative hits for the October to December period was $18.7 billion; over four times the $4 billion in the previous quarter and the highest in four years.
For North American and Europe companies monitored last year, $39.5 billion in revenue was lost due to currency volatility. More than 110 companies cited movements of the euro against the dollar, up from 72 the prior quarter.
A JPMorgan Chase & Co. global currency volatility index jumped to 11.68 percent earlier this year, its highest since June 2013.
Sixty-seven percent of North American companies negatively affected during the fourth quarter predicted more headwinds in 2015. Twenty-six percent gave guidance that currency impacts for all of 2015 would cut annual revenue by an average of 4.49 percent.
“This volatility is not the new norm,” Koester said. “The volatility is actually going to increase further.”
Bloomberg News
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