Dollar’s dive offsets tariff sting for some US bellwethers
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Diverging Reports Breakdown
Dollar’s dive offsets tariff sting for some US bellwethers
A weaker dollar enhances the value of foreign earnings of U.S. companies. Every 1% depreciation in the dollar historically improves S&P 500 earnings per share growth by about 0.6 percentage points. But a forex tailwind is not always enough to reassure investors, who are looking out for signs of real growth as skittish consumers curb spending. “In many ways, investors should consider some of these things as transitory or one-time adjustments that are not sustainable,” said Michael Arone, chief investment strategist at State Street Investment Management. “We originally expected over $100 million of headwinds from a strengthening dollar and the reverse has happened,” medical equipment maker Edward Lifesciences said.
Summary
Companies Netflix, Pepsi raised FY guidance, citing weaker dollar
BlackRock saw positive impact of softer dollar on AUM
Investors cautious about FX-driven earnings beats
July 22 (Reuters) – A slump in the dollar has come to the rescue of some major multinational U.S. companies this earnings season, easing the sting from President Donald Trump’s tariffs that have driven up costs and upended financial planning.
A weaker dollar enhances the value of foreign earnings of U.S. companies, while also making American exports more competitive.
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Last week, PepsiCo , which relies on international business for about 40% of its total net revenue, forecast a smaller annual profit drop helped by a weaker dollar.
Rival Coca-Cola (KO.N) , opens new tab said on Tuesday its annual comparable earnings per share is expected to be near the top end of its target of a 2% to 3% rise, helped by a softer greenback.
“The whole point of Trump’s plan is to try to get the dollar weaker in order to try to increase international sales for U.S. multinationals,” said Robert Pavlik, senior portfolio manager at Dakota Wealth.
“It’s probably a good course of action to take and we’ll continue to see that going forward especially if he gets his way as far as rates are concerned.”
Based on two decades of data, every 1% depreciation in the dollar historically improves S&P 500 earnings per share growth by about 0.6 percentage points, according to LSEG data. Roughly 38% of S&P 500 revenue is derived from international markets.
“We originally expected over $100 million of headwinds from a strengthening dollar and the reverse has happened,” medical equipment maker Edward Lifesciences (EW.N) , opens new tab CFO Scott Ullem said at a Jefferies conference on June 4.
Dollar is down more than 10% this year
TAILWIND NOT ENOUGH
Still, a forex tailwind is not always enough to reassure investors, who are looking out for signs of real growth as skittish consumers curb spending.
Investors typically do not reward FX-driven sales beats the way they reward constant-currency beats, Goldman Sachs strategists said in a note.
“In many ways, investors should consider some of these things as transitory or one-time adjustments that are not sustainable,” said Michael Arone, chief investment strategist at State Street Investment Management.
Netflix (NFLX.O) , opens new tab shares declined more than 4% on Friday as some investors were disappointed by a revenue forecast raise that was driven more by a weaker dollar than strong demand.
Here is a list of some the companies that noted a currency-related impact in their latest earnings:
Reporting by Shashwat Chauhan and Johann M Cherian in Bengaluru; Editing by Saumyadeb Chakrabarty
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