Insight to All Things Currency and Treasury Management

When you are on the phone with analysts during your corporate earnings calls, the last answer you probably want to give to an analyst’s question is: “I don’t know.”

If your company is one of the thousands of public companies that do business internationally, given the recent increase in currency volatility and the strengthening dollar, there is one new question you may need to be able to answer on that call with analysts: “What’s your company’s FX risk and how are you managing it?”

According to data from FiREapps that was recently published in the Wall Street Journal, during second quarter earnings calls, 34% of multinational companies were questioned by analysts about foreign exchange issues, up from 23% in the first quarter.

Our review of 639 earnings calls this year uncovered a direct correlation between the price of the euro versus the US dollar and the amount of scrutiny CEOs and CFOs faced from analysts. Analysts are increasingly interested in understanding how FX will impact earnings and EPS. Our analysis of these earnings calls through the past several quarters shows that 35.8% of analyst questions focused on the impact of FX on P&L, 21.6% on earnings guidance and almost 10% on hedging plans. As the US dollar strengthened against the euro, the number of questions increased, from 22.7% of coverage when the euro was valued at $1.35 USD, to 34.1% when that ratio fell to $1.25 USD.

Barron’s prediction last month that the euro will continue to fall sharply, potentially reaching par with US dollar, can only mean more focus on FX – both from analysts and investors – as well as from corporate treasury departments looking to avoid unexpected losses.

It is important keep in mind that it is not just the euro causing potential earnings surprises. BRIC and emerging market currencies, such as the Brazilian real and the Indian rupee, are continuing to have an impact on corporate earnings as well.

The next step for CFOs and treasurers is to take the necessary steps to understand their FX exposure, so both can take the necessary steps to protect their companies from the related risks and intelligently respond when analysts ask those hard FX exposure questions.

We want to know what you’re doing to understand your exposure and minimize the risk to your company. You’re welcome to join us in this conversation on addressing FX risk, one of the most important issues for the next 12 months for multinational companies. We look forward to hearing your thoughts.