How Rising Dollar Is Impacting These U.S. Companies?

The US Central Bank’s bid to quantitatively ease the economy by lowering the interest rates may have helped the economy rebound and boost stock prices. However, the rise in the dollar against overseas currencies has definitely reflected on the ‘earnings’ report of many an US-listed company.

With Bank of Japan and the European Central Bank aggressively pursuing bond buying programs, in recent times the dollar has surged leading to American companies with US-listing making separate provisions to reflect the parity caused in the earnings due to foreign exchange realization.

The most recent example has been fast-food chain McDonald’s Corporation (NYSE:MCD) which broke February sales into two categories that display the issue.. While it said the drop in sales of 8% from previous year was with reference to ‘system wide’ sales. When evaluated under ‘constant currency’ rates, McDonald’s had a 0.5% increase in sales. Hence, currency rates are a growing problem for the large-sized companies in the US, with annualized revenue from overseas.

The list of those affected includes top players such as Coca-Cola Company (NYSE:KO) with 100% annualized sales from its global markets. Others in the list, which constitute the top-20 S&P 500, include Qualcomm Inc. Broadcom Corp. Class A, Texas Instruments, with 85% and more annualized overseas sales.  As FactSet, the source of the listing indicates, among the top-20 of the large-cap US stocks, all of them have 75% of their annualized sales from their worldwide markets.

For companies such as KO or other such as Yum Brands with 77.7% sales from countries with currencies priced lower against the strengthening US Dollar, the reflect in the earnings’ report is indeed a big challenge!

Analysts reiterate that the quick rising dollar will not cause a decline in American stocks for the simple reason that the companies will see a corresponding drop in expenses due to decline in the native currencies.

Lisa Ray

Lisa Ray primarily covers Retail and Healthcare. Lisa Ray has completed her MBA (Finance) and an avid market tracker. She is a stock market analyst who closely tracks US markets along with other global markets like India. She has been expressing her views for years about markets and also advises various clients.

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