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 Companies including Whirlpool Corp, Johnson & Johnson, and Xerox
Corp have told investors over the last two weeks that they see the
pain from the dollar's two-year rally easing, allowing them in some
cases to beat earnings estimates and raise their outlooks for the
rest of the year.
Less well-known companies are benefiting, too: insect repellent
company Rollins Inc said the weaker dollar was a key reason why it
beat estimates when it announced its quarterly results Wednesday,
while medical supply maker C.R. Bard Inc <BCR.N> cited the weakening
of the dollar when it announced that it was raising its guidance for
the year.
"We think we've seen an inflection point where for the balance of
the year there should less of a drag from currency," said Phil
Orlando, equity strategist at Federated Investors.
The dollar has backed off from 12-year highs it reached in November
against a basket of other major currencies as U.S. gross domestic
product numbers flatlined, leaving many investors to assume the
Federal Reserve will delay raising interest rates. The dollar hit an
11-month low on Friday.
A weaker dollar helps U.S. companies by making their products
cheaper overseas, while also boosting the value of revenues earned
in local currencies when translated back into dollars. Most large
companies hedge at least part of their foreign revenues, so the
effect of currency fluctuations often translates to less than 5
percent of total earnings, Orlando said.
Yet at a time when many companies are struggling to post any
year-over-year earnings growth, unexpected relief from the strong
dollar blues could be enough for them to beat estimates and send
shares higher.
Johnson & Johnson, for instance, said the strong dollar took a 3.3
percent slice out of global sales in its first quarter, half of the
impact from the quarter before. Its shares rose 2.7 percent after it
reported its results, hitting a record high.
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'EASIER FROM HERE ON OUT'
Overall, 72 percent of U.S. multinational companies – those which
would see the largest impact from currency fluctuations – have beat
earnings per share estimates this quarter, in large part because of
the dollar’s decline, according to Thomas Lee, managing partner at
Fundstrat Global Advisors.
In a sign that the dollar's slide should continue to help for the
remainder of the year, analysts have raised their earnings per share
estimates for 57 percent of multinationals, by an average of nearly
1 percentage point, he said.
The dollar's retreat comes on the heels of the fourth quarter of
2015, when currency translation took $33.94 billion out of North
American company revenues, the worst negative impact in nearly five
years, according to research firm FireApps.
Fund managers, meanwhile, say that the weaker dollar will help
stabilize commodity prices, which are often priced in dollars,
helping both energy company earnings and overall investor sentiment.
With lower currency costs and an easing of fears that sustained oil
prices below $30 a barrel will lead to deep layoffs among energy
companies, a "weaker dollar makes things easier from here on out,"
said Mike Balkin, a portfolio manager at William Blair.
(Reporting by David Randall; Editing by Linda Stern and James
Dalgleish)
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