Insight to All Things Currency and Treasury Management

Last month featured an article by FiREapps CEO Wolfgang Koester, who wrote about how the U.S. dollar is the currency to watch in 2014 because appreciation will hit hard the multinationals that are not prepared. That message, among others, is also reflected in the FiREapps 2013Q3 Corporate Earnings Currency Impact Report.

In addition to a detailed discussion of expectations for 2014, the report details how multinational corporations were impacted by currency volatility in 2013. This post represents the highlights.

In the third quarter, the quantified negative currency-related impact to U.S.-based MNCs was $4.18 billion. That represents a 1.34% headwind on top line revenue. The average currency-driven impact to EPS was $.03. Considering that FX managers from leading multinationals increasingly have MBOs (management objectives) of less than $.01 EPS impact from balance sheet exposures alone, an average $.03 hit to EPS from all exposures is large and material.

Compared to previous quarters, those results represent largely more of the same. That is significant. These corporates still impacted by currency volatility should have caught on by now; there are plenty of multinational corporations that are managing the impact to within $.01 EPS. That some still are not should be absolutely unacceptable to investors and Boards.

Most impactful currencies

FiREapps Top Currencies Impacting Corporate Earnings 2013 Q3

The top 5 currencies mentioned as impactful included some usual suspects: the Brazilian real, the Japanese yen, and the euro as well as the Australian dollar (a newcomer to the list in Q2) and the Indian rupee (its first appearance in 2013).

Most impacted industries

FiREapps Industries Impacted by Currency Volatility 2013 Q3

The top 5 industries impacted (ranked by the number of companies in that industry reporting currency impact) were Medical Equipment & Supplies, Auto, Chemical Manufacturing, Biotech & Drugs, and Business Services. Except for Auto, all industries ranked in the top 5 in other quarters as well.

Bottom line

There is no reason for corporates to not manage currency risk, wherever it originates. In 2014, corporates that don’t take proactive action to manage the consequences of an appreciating dollar will be in the same position next earnings season as companies that haven’t managed the impact of the yen decline: telling investors about the multi-million or even billion dollar earnings losses.

Savvy investors take heed: those kinds of impacts are avoidable.