8 iconic American companies that have been hurt by the strong dollar

October 14, 2015 03:10 PM

Since July 2014, the U.S. dollar has advanced more than 20% against other world currencies. To many, having a strong currency might sound like a good thing, and in many respects it is. The dollar’s relative strength is a reflection of the U.S. economy, which continues to improve since the financial crisis.

While a strong dollar might be good for national pride, it’s been a major headache for multinational American companies. The most cited reason for subpar second quarter earnings, in fact, is the greenback. Financial number-cruncher firm FactSet noted in a recent report that the impact of the strong dollar was a recurring theme in many earnings reports, from Nike to Costco to AutoZone.

The reason? A strong currency makes U.S. exports and products more expensive to other countries, which might encourage them to switch suppliers. It also means that the value of overseas sales is reduced when it’s converted back into dollars.

In the last year, many countries and regions—including Europe, Japan and, most recently, China—have devalued their currencies, making their export prices more attractive to foreign buyers. The Colombian peso is down 23% against the dollar; the Turkish lira, 20%. The Brazilian real has lost close to 30% this year.

In the chart below, you can see the huge difference in second quarter earnings and revenue growth between S&P 500 companies that conduct less than half of their business within the U.S. and those that mostly focus outside the U.S.

From materials to information technology to consumer discretionary, no sector is immune. The only way to avoid the pratfalls of unfavorable foreign exchange rates is to restrict business to the U.S., an idea most growth-seeking companies wouldn’t entertain. Even if business were to remain stateside, revenue could still be hurt by a lack of foreign tourists, since a strong local currency makes travel and shopping more expensive for them.

Luxury jeweler Tiffancy & Co., for one, is well aware of this fact. 

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About the Author

Frank Cacchione is CEO of TNC Management Group, specializing in applying advanced business analytics, systems development, and project management support for the insurance industry. He has had a wide range of consulting and senior management experience in the insurance and reinsurance industry. He has consulted with Insurance organizations in North America, Europe, Latin America and the Middle East as a Partner with Tillinghast/TPF&C, PA Consulting Group and AMRE Consultants.