Volatility in the US$5.3-trillion-a-day foreign exchange (FX) market is dragging down U.S. corporate earnings by the most since 2011, according to a report from FiREapps.
Currency fluctuations eroded earnings for the average North American company by 12 cents per share in the third quarter of 2015, according to the Scottsdale, Arizona-based firm, which advises businesses and makes software to help reduce the effect of foreign-exchange swings. That's the most in data going back at least four years, and is up from an average 3 cents per share in the second quarter.
“This is the worst I've seen it,” FiREapps chief executive officer Wolfgang Koester said in a telephone interview. “Investors and analysts are taking a very close look at corporate results impacted by foreign exchange and recognize how material they are.”
A JPMorgan Chase & Co. measure of currency volatility averaged 10.1 percent during the third quarter, up from 6.3 percent 12 months earlier. Last year, some of the biggest price swings came from unscheduled events, such as China's August devaluation of the yuan, Switzerland's decision to scrap its currency cap, and plummeting commodity prices.
Companies in North America lost at least $19.3 billion to foreign-exchange headwinds in the third quarter of 2015, FiREapps data showed. The losses grew by about 14 percent from the second quarter. Of the 850 North American corporations that Fireapps analyzed, 353 cited the negative impact of currencies in their earnings, more than double the previous quarter.
“That is the largest number of companies talking about currency impact that we've ever seen,” Koester said.
Profit in 2015 at Kimberly-Clark Corp., the maker of Kleenex tissues and Huggies diapers, was reduced by about 25 percent by currency effects, Tom Falk, the company's chief executive officer, said in an interview with Bloomberg Television.
China's yuan is garnering more attention from corporations amid concern that growth in the world's second-largest economy is slowing, according to FiREapps.
Yet North American firms remain most concerned about the effects of the euro, Brazilian real, and Canadian dollar on their results. The currencies have fallen 7.8 percent, 34 percent, and 16 percent against the greenback over the past 12 months. The stronger U.S. dollar means higher, less-competitive prices for U.S. businesses seeking to sell their products overseas. Companies also take a hit when they account for revenue denominated in weaker overseas currencies, unless they hedged their exposure.
European companies suffered currency-linked losses of $4.7 billion for the third quarter, up from $2.5 billion for the previous period.
–With assistance from Liz Capo McCormick.
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