FX Provides Revenue Boost for US Companies
Posted by Colin Lambert. Last updated: February 10, 2022
The latest quarterly Kyriba Currency Impact Report, which details the impacts of FX exposures among 1,200 multinational companies based in North America and Europe, reveals $11.98 billion in total impacts to earnings from currency volatility.
The combined pool of corporations reported $9.86 billion in tailwinds and $2.13 billion in headwinds in the third quarter of 2021. North American companies experienced greater tailwinds than their European counterparts, reporting $9.32 billion in FX-related positive impacts — a decrease of 145% from the previous quarter. By comparison, European corporations reported $541 million in positive currency impacts — a decrease of 20% from the previous quarter.
“Headwinds and tailwinds combine to reveal the vulnerability North American and European multinational corporations’ revenues and earnings per share have to currency movements, says Wolfgang Koester, chief evangelist at Kyriba. “As the era of low interest rates and, potentially, the strong US dollar concludes, these quantified impacts are a troubling warning sign as this next environment will become more challenging for CFOs to achieve the industry standard MBO of less than $0.01 EPS impact and protect their balance sheets and income statements from currency volatility.
“CFOs have a long way to go to mitigate risk and include substantial currency gains as part of their earnings revenue,” he warns.
The report finds the average earnings per share (EPS) impact from currency volatility reported by North American companies in Q3 2021 went up to $0.04 — four times greater than the recommended standard of $0.01 EPS impact. Additionally, publicly traded North American companies that qualified to be monitored in the Q3 2021 survey reported a combined $9.32 billion in positive currency impacts, and $929 million in negative currency impacts.
The Canadian dollar was cited 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. The euro was also the currency most mentioned as impactful by European companies on earnings calls, followed by the Swedish krona and the dollar ranking third.
“Supply chain disruption, currency volatility and inflation are testing CFOs and treasurers’ enterprise liquidity strategies,” says Koester. “For the remainder of 2022, execution of applicable best practices to protect shareholder value will be a large driver for growth and necessary risk reduction. CFOs need to demonstrate to their investors and boards how to best optimise enterprise liquidity in this new economic environment. They are going to be expected to demonstrate strong balance sheet and cash forecasting precision with various cash flow scenarios.”