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.
Companies such as Levi Strauss (NYSE:LEVI), Netflix (NASDAQ:NFLX), Pepsi and 3M, which generate significant revenue from overseas sales, reported a boost to their April-June earnings or raised their annual forecasts due to the slump in the dollar.
The greenback has lost about 10% this year, due to rapidly changing U.S. trade policy and worries about growth and ballooning government debt.
Last week, PepsiCo (NASDAQ:PEP), which relies on international business for about 40% of its total net revenue, forecast a smaller annual profit drop helped by a weaker dollar.
"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.
Information technology, consumer discretionary, health care and industrial companies have the highest international exposure.
"We originally expected over $100 million of headwinds from a strengthening dollar and the reverse has happened," medical equipment maker Edward Lifesciences CFO Scott Ullem said at a Jefferies conference on June 4.
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 (NYSE:STT) Investment Management.
Netflix 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:
Company Ticker Currency Impact Additional
Notes
3M Positive impact Q2
from weaker USD profit:
$2.16/share
vs. $2.01
estimate
BlackRock (NYSE:BLK) Compared to
Positive FX $35.45B
impact of $171.52 decline YoY
billion on AUM
Garmin (NYSE:GRMN) Positive benefit Raised
from FX shifts full-year
revenue growth
guidance to
15%
Omnicom FX translations Q2 revenue
led to 1.1% boost
revenue increase
Concentrix Expected ~140 bps Compared to
positive FX previous year
impact for Q3
BNY Favorable FX Driven by
impact market values,
contributed to inflows, and
13% rise in weaker USD
assets under
custody/admin
Danaher Q2 sales stood at Largely in
(N:DHR) $5.94 billion, line with
partly helped by average
weaker dollar expectation of
$5.84 billion