FX Damage to US Corporate Bottom Lines Intensifies

As expected, following a tough report into the impact of dollar strength on multi-national companies’ revenues in Q4 2021, the Q1 Kyriba Currency Impact Report finds headwinds have more than doubled during the period.

After finding that North American companies faced currency-related headwinds of just over $4.5 billion in Q4 2021, the latest report estimates these firms saw $14.66 billion in headwinds in the first quarter of this year as the US dollar continued its upward path. Even more concerning for these firms is that in Q2 the dollar bull run has intensified with the Dollar Index, which entered the quarter around the 99.0 mark, exited Q2 around 104.80. Since Q3 collective currency headwinds for North American companies have increase a massive 1476%.

The Kyriba report details the foreign exchange impact among 1,200 multinational companies based in North America and Europe with at least 15 percent of their revenue coming from overseas. The latest report reveals $24.03 billion in total impacts to earnings from currency volatility, with the combined pool of corporations reporting $7.57 billion in tailwinds and $16.46 billion in headwinds in the first quarter of 2022.

European companies, feasting on the dollar’s strength, meanwhile, reported a 17% percent decrease in negative currency impacts, with companies reporting $1.80 billion in FX-related headwinds.

The average earnings per share (EPS) impact from currency volatility reported by North American companies in Q1 2022 decreased to $0.03 — three times greater than the recommended standard of $0.01 EPS impact.

“A strong US Dollar may reduce inflationary pressures over time, but currently FX volatility is wreaking havoc on the overseas revenues of multinationals,” says Wolfgang Koester, chief evangelist of Kyriba. “The combination of a strong dollar and continuous increased currency volatility are clear signals to CFOs and treasurers, indicating the need for faster, more refined financial controls.

“Any company that has currency impacts in excess of one cent EPS should resolve the underlying exposures with best applicable practices,” he adds. “While the CIR focuses on the largest US and European corporations, they are not the only corporations who feel the effects of a strong US dollar.”

North American companies indicated the Russian ruble (RUB) as the most impactful currency, with 33% of companies referencing it as impacting revenues; the euro was second with 27% of North American companies identifying it as impactful and the Chinese yuan ranking third. The ruble was the currency most mentioned as impactful by European companies on earnings calls, followed by the Swedish krona and the US dollar ranking third.

“An increasing number of equity analysts and board of directors recognise that CFOs actually can manage currency risk properly,” observes Koester. “Since the turn of the century, many corporations have been leveraging technology to gain accurate and faster visibility to their currency risk and the underlying exposures. However, the July 2022 CIR data, shows that many corporations still do not. CFOs need to think about valuations and create more confidence in earnings by eliminating EPS at risk.”