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Dollar triple threat to U.S. earnings

Monday, October 06, 2014 - 02:19

The red hot dollar is driving up the cost of doing business overseas, keeping down the value of non-U.S. sales and could be a sign that international demand is softening. Bobbi Rebell reports.

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The U.S. economy is probably the envy of much of the world- but U.S. companies that depend on selling their products on the global market are likely to get slammed this earnings season by the latest wrinkle to the improving economic outlook: the unstoppable rising dollar, which makes doing business overseas a lot more expensive. Wunderlich Securities' Art Hogan: SOUNDBITE: ART HOGAN, CHIEF MARKET STRATEGIST, WUNDERLICH SECURITIES (ENGLISH) SAYING: "If you make a lot of things in dollars and you've been selling them in foreign currencies when you translate that back into dollars that is going to affect your earnings so that is the fx effect." In fact we already got an earnings warning from Ford, pointing to steeper losses in Russia and South America. Europe with its myriad of economic problems is also a source of worry for U.S. multinationals. And tech companies may be especially vulnerable. It has the highest percentage of foreign sales- at 57 percent, according to S&P Dow Jones data. Qualcomm gets 97 percent of its sales abroad; Intel 83 percent. Third-quarter profit-growth expectations for S&P 500 companies have fallen back to 6.4 percent from about 11 percent two months ago according to Thomson Reuters. REPORTER BRIDGE: BOBBI REBELL, REUTERS CORRESPONDENT (ENGLISH) SAYING: So far the 4th quarter forecasts have not fallen much at all- but that could change. SOUNDBITE: ART HOGAN, CHIEF MARKET STRATEGIST, WUNDERLICH SECURITIES (ENGLISH) SAYING: "This has been about 11 or 12 weeks in a row that we have seen significant strength in the dollar. We haven't seen this kind of strength, this consistently, for about 4 years. So this is certainly something to keep an eye out for, and I'd really pay close attention to those companies that talk about their 4th quarter guidance and perhaps take it down because of the currency effect." That currency effect is expected to remain a factor. Michael Woolfolk is senior currency analyst at Bank of New York Mellon: SOUNDBITE: MICHAEL WOOLFOLK, SENIOR CURRENCY ANALYST, BANK OF NEW YORK MELLON (ENGLISH) SAYING: "So the U.S. dollar is going to continue to strengthen over the course of the next 2-3 years. However, in the 4th quarter we're probably a little overstretched in terms of dollar gains. Speculators have certainly played their part, so I don't think that one would bet on continued strengthening of the U.S. dollar from $125 let's say. We expect $125 by the end of the year" The first big name to watch: Tuesday, Yum brands, which gets 77 percent of its sales overseas.

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Dollar triple threat to U.S. earnings

Monday, October 06, 2014 - 02:19