Insight to All Things Currency and Treasury Management

This blog post presents highlights from the just-released FiREapps 2014 Q2 Corporate Earnings Currency Impact Report (CIR), which reveals the results of our analysis of the earnings calls of 1200 publicly traded North American and European companies.

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. That is one of the key findings of the FiREapps 2014 Q2 Corporate Earnings Currency Impact Report.

But there was a resurgence of volatility in the third quarter. That volatility could produce currency impact surprises for multinational corporates that have not instituted modern currency risk management programs.

Key CIR Highlights

  1. The total reported negative currency impact in 2014 Q2 was $3.9 billion. A greater number of North American corporates (132) than Europeans (124) reported negative currency impacts in the first quarter. However, the aggregate impact quantified by companies in Europe was larger (€2.1 billion, or $2.7 billion) than in North America ($1.2 billion).Figure 1: Negative Currency Impact Reported by Companies in 2014 Q2fig1
  2. The currency impact reported by European corporates was larger than 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 significantly larger for European corporates ($135 million, 0.39% of average annual revenue) than North American corporates ($41.8 million, 0.23% of average annual revenue).Figure 2: Average Per-Company Negative Currency Impact in 2014 Q2fig2
  3. 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.
  4. Both North American and European corporates reported continued challenges from emerging market currencies. Overall, none of the 2014 Q2 Currency Culprits were particularly surprising.Figure 3: 5 Currencies Most Mentioned in 2014 Q2 Earnings Calls as ImpactfulNA-Eur-currs-2014Q2
  5. The industries that were particularly impacted by currency diverged between North American and European companies in the second quarter. Two industries appeared on the list for Europe that have not been areas of high currency impact for North American companies. But overall, there were no particular industry surprises in the second quarter.
  6. For North American corporates, average EPS impact was back to $.03. Among only the companies reporting negative currency impact, however, average EPS impact was more than 4 cents. Unlike last quarter when impacts were, on average, higher and no European corporates expressed their impact to earnings in terms of EPS, this quarter two did so.
  7. 2014 Q2 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 in volatility in the third quarter.

Figure 4: Quarterly Volatility in U.S. Dollar & Euro Currency Pairs