Currency Volatility Costs US, European Companies $3.9bn in Q2

The total reported negative currency impact in the second quarter of 2014 was $3.9 billion, according to the 2014 Q2 Currency Impact Report from FiREapps.

After analyzing the earnings calls of 1,200 publicly traded North American and European companies, FIREapps found that the second quarter of 2014 was a period of relatively low volatility. As a result, aggregate negative currency impact was at its lowest in more than two years. However, there was a resurgence of volatility in the third quarter, which could produce currency impact surprises for multinational corporations that have not instituted modern currency risk management programs.

A greater number of North American corporations (132) than Europeans (124) reported negative currency impacts in Q2. However, the aggregate impact quantified by companies in Europe was larger (€2.1bn, or $2.7bn) than in North America ($1.2 bn). Ninety-four US companies reported positive currency impacts in Q2 for a combined $824m profit from currencies, which is up 80% from Q1 (52 companies). Also in Q2, the net negative currency impact was $389m; In Q1, the net negative currency impact was $3.26bn.

The currency impact reported by European corporations was larger than that reported by North American companies in 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 businesses ($135m, 0.39% of average annual revenue) than North American businesses ($41.8m, 0.23% of average annual revenue).

Fully 23% of the North American companies reporting currency impact fielded currency impact-related questions from analysts; 44% of the European companies did. Analysts are more likely to ask about currency impact when more companies are reporting more significant impacts. In line with their relatively higher levels of impact in Q2, European companies fielded analyst questions at about twice the rate of their North American counterparts.

Both North American and European corporates reported continued challenges from emerging market currencies. Overall, none of the ‘2014 Q2 Currency Culprits’ – the top five currencies most mentioned in 2014Q2 earnings calls as impactful – were particularly surprising: the BRL, EUR, VEF, ARS and JPY for North America, and the USD, BRL, RUB, EUR and AUD for Europe.

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