Foreign Exchange Impact on Companies on the Rise
In an up-tick from the trend of decreasing volatility and negative foreign exchange impacts over the previous five quarters, the second quarter of 2017 showed an increase in negative impact by $740 million, with North American and European companies quantifying a total negative impact of $7.44 billion.
A total of 251 companies – 220 in North America and 31 in Europe – reported negative currency impacts in Q2 2017, in a study released by FiREapps, as compared to 228 in Q1 2017. North American corporations sustained $6.71 billion in negative impacts and European corporations sustained nearly $730 million in FX impacts.
Each quarter, FiREapps, a provider of foreign exchange software, analyzes the earnings calls of 1,200 publicly traded North American and European companies in an effort to provide insight into how currency impacts organizations. The companies included in this data set are large multinational firms doing business in more than one currency with at least 15 percent of their revenue coming from overseas.
More companies reported negative currency impacts in the second quarter than in Q1 2017 as companies tend to pay closer attention to their FX impacts as they sustain larger losses. The average earnings per share (EPS) impact reported by North American companies increased to $0.04—four times the industry standard of managing EPS at risk to less than $0.01.
Of the 850 North American-based multinational companies that FiREapps analyzed in the second quarter of 2017, 220 reported negative currency impacts—3.3 percent more than the number of companies that reported in Q1 2017. Twenty-six percent of the 220 companies that reported headwinds in Q2 2017 reported a negative impact from currency. A collective $6.71 billion loss was reported by North American companies that quantified their negative FX impacts.
The medical equipment and supplies industry continued to be the leading North American industry facing FX impacts. Electronic instruments and controls came in second.
The British pound and the euro were the most referenced currencies as being impactful to North American companies. Although the British pound was referenced more often, it was not one of the most volatile G20 currencies or one of the most volatile currencies as weighted by GDP percentage. The Chinese renminbi, Brazilian real, and Canadian dollar tied as the third most impactful currencies, followed by the Japanese yen and the Australian dollar.
The Canadian dollar and the Australian dollar were not included in the top five most volatile currencies. This, according to the report, highlights “how important it is for corporations to manage their entire portfolio of currencies, as the currencies that are the most volatile might not always be the most impactful.”