Economy

Strong dollar taking a toll on corporate profits

More companies report earnings hits over foreign exchange rates.
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· less than 3 min read

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While it might be great for planning a European vacation, the recent strength of the dollar is not giving balance sheets a break.

In early June, Microsoft lowered its fourth-quarter profit and revenue forecast, partly because of currency fluctuations. This followed announcements by Accenture, Procter & Gamble, and Coca Cola that a strong dollar was negatively affecting profits. On July 18, IBM announced a $3.5 billion second-quarter forex hit despite revenue growth for the quarter.

The dollar is at a 20-year high when compared to other major global currencies like the euro, Japanese yen, British pound, and Canadian dollar. This is good news for companies with revenues largely in dollars, but painful for organizations with significant overseas revenue in foreign currencies.

However, the companies best positioned to take advantage of the dollar’s strength have been preparing for forex risk and instability well in advance, according to one currency expert.

“If they’re not prepared, they’re either in a panic making knee-jerk decisions, or they’re frozen, not being able to pull the trigger on some good opportunities for themselves. And then if they have a plan, they’re basically following their rules and the goals that they’ve set out and are kind of on autopilot,” said Jeffrey Boyko, currency engineer at Castle Currency, a currency consultancy based in Winnipeg, Canada. “It all depends on what side of the market they’re on.”—DA

News built for finance pros

CFO Brew helps finance pros navigate their roles with insights into risk management, compliance, and strategy through our newsletter, virtual events, and digital guides.