Multinationals Are Seeing Less Impact From Foreign Exchange Volatility

Currency volatility in the second quarter dogged U.S. and European multinationals to a much lesser degree than it has in most of the past two years, according to the latest survey by financial consultancy FiREapps. In the quarter ended last June 30, fewer companies reported a negative impact from currency, and the aggregate impact was lower than it was in every quarter since the first of 2012.

All told, 132 companies reported negative currency impacts in Q2, for a total of at least US$1.21 billion in revenue eroded. Compared to the second quarter of 2013, the number of companies that reported negative impacts was down 43 percent, and the size of quantified impact of that was down 70 percent.

In addition to fewer and smaller negative impacts, the quarter saw a greater number of companies reporting positive currency impact--or "tailwinds"--than they have since the third quarter of 2011. Fully 94 companies reported tailwinds. Among those that quantified the impacts, the tailwinds totaled US$824 million. Those tailwinds offset headwinds to a large extent, bringing the net quantified currency impact on North American corporates to US$389 million for the quarter.

America vs. Europe

While the total reported negative currency impact in 2014 Q2 was US$3.9 billion, a greater number of North American corporates (132) than Europeans (124) reported negative currency impacts in the first quarter. However, the aggregate impact quantified by companies in Europe was larger (€2.1 billion, or US$2.7 billion) than in North America (US$1.2 billion).

The currency impact reported by European corporates was larger than that reported by North American corporates in both absolute and relative terms. The average per-company negative impact--both as a number and as a percentage of revenue--was significantly larger for European corporates (US$135 million, or 0.39 percent of average annual revenue) than North American corporates (US$41.8 million, or 0.23 percent of revenue).

Industries and currencies

The industries reporting the biggest impact also differed by region. In North America, those industries included medical equipment and supplies, business services, electronic instruments and controls, miscellaneous capital goods, and auto and truck makers. In Europe, the most affected industries were chemical manufacturing, auto and truck makers, biotechnology and drugs, aerospace and defense, and construction and agricultural machinery.

The currencies responsible for the impact varied by region as well. North American corporates were most impacted by the Brazilian real, euro, Venezuelan bolivar, Argentine peso, and Japanese yen, while Europeans were hit mostly by the U.S. dollar, the real, the Russian ruble, the euro and the Australian dollar.

Despite the second-quarter lull, the average impact on North American corporates' EPS was $0.03, three times the amount that FiREapps considers best practice. And the negative hit was a penny greater. Still, that was down from the five cents that North American corporates experienced during the first quarter of the year. Nonetheless, FiREapps expects EPS volatility from FX to return in the third quarter as currency values themselves have fluctuated more greatly in recent weeks.
 

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