Emerging Markets Currency Volatility Still Impacting on Earnings

Volatile emerging market (EM) currencies continued to impact negatively on the earnings of both European and North American companies during the first quarter of 2014, reports FiREapps.

The analytics group’s latest ‘Corporate Earnings Currency Impact Report’ shows that companies on both sides of the Atlantic continued to face challenges from the fluctuating Brazilian real (BRL), while North American corporates also cited the Argentina peso (ARS) and Venezuelan bolivar (VEF). In January 2014 the ARS fell by 23% while Venezuela devalued by 44% the same month.

European companies also reported significant negative impacts from the Russian ruble (RUB) and Turkish lira (TRY).

For its Q114 report, FiREapps analysed the earnings calls of 846 publicly-trade North American companies, all of which were Fortune 2000 firms with at least 15% international revenues in a minimum of two currencies. It also added 354 European companies to its data set.

The total reported negative currency impact in Q114 was US$7.4bn. While a total of 186 North American corporate reported negative currency impacts in the period, against 113 Europeans, the aggregate impact quantified by companies in Europe was larger, at €3.08bn or US$4.19bn, than in North America (US$3.26bn).

Over the period, the currency impact reported by European corporates exceeded that reported by North American corporates in absolute and relative terms. The average per-company negative impact – both as a number and as a percentage of revenue – was much larger for European corporates (US$323m, or 0.92% of average revenue) than North American corporates (US$60.3m, or 0.34% of average revenue).

For North American corporates, the earnings per share (EPS) impact from currency volatility jumped from an average of US$.03 EPS per quarter in 2013 to US$.05 EPS in Q114. None of the European corporates quantified currency impact in EPS terms.

A positive finding was that the number of US and Canadian companies reporting negative currency impact in Q114 was the lowest for two years. At 186 companies, the total was 5% lower than for Q413, while the total of revenue eroded, at US$3.26bn, was down 44% on the previous quarter.

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