The Currency Winds Have Shifted
After Kyriba’s Q1/2022 “Currency Impact Report” showed FX boosting multinationals’ earnings by more than $9 billion, the Q2 report shows that currency headwinds reduced corporate profits by a total of $4.56 billion in North America alone.
Last month, Treasury & Risk spoke with Kyriba’s Wolfgang Koester about that company’s Q1/2022 “Currency Impact Report.” The study examined the financial statements of 1,200 large public companies outside the financial services sector and found that they experienced more than US$9 billion of currency tailwinds in Q3/2021, a trend that increased their earnings per share (EPS) by an average of 4 cents for the quarter.
Late last week, Kyriba released its Q2/2022 “Currency Impact Report,” based on corporates’ reporting of Q4/2021 earnings. This latest analysis shows that by the end of last year, the currency winds had taken a fairly dramatic turn for the worse.
Some organizations were still feeling positive effects on their earnings from currency volatility through December. The North American companies in the study experienced these “tailwinds” through a cumulative $468 million improvement to corporate earnings.
However, many more experienced shifts in foreign exchange (FX) rates as “headwinds” that suppressed their earnings. For multinationals based in North America, the impact of the headwinds totaled $4.56 billion, a 390 percent increase over the prior quarter—and nearly 10 times higher than the tailwinds in the same period.
The industries that felt the most negative impact were healthcare equipment and supplies, chemicals, professional services, biotech and pharmaceuticals, and life sciences tools and services. For North American companies, the Canadian dollar was the currency with the largest impact, followed by the euro and the Chinese yuan.
“Corporate risk managers face a difficult challenge as inflation and currency volatility are increasing due to the myriad issues impacting global markets,” Koester said in response to the Q2 report. “We are seeing a doubling or tripling of their portfolio currency risk, and the cost of hedging is also increasing.”