LONDON (Financial Times) -The strong dollar has wiped billions of dollars off the second-quarter sales of U.S. companies, prompting many to cut their guidance for the remainder of the year.
The list of bellwethers stomaching multimillion- or billion-dollar hits has grown by the day after the U.S. currency surged to its highest level in 20 years this month, including IBM, Netflix, Johnson & Johnson and Philip Morris.
That group is expected to swell as titans of the technology industry such as Apple and Microsoft — which generate a substantial portion of their business outside of the U.S. — release quarterly results in the coming days.
The currency shock has muddled an earnings period that was being closely studied for signs of a weakening global economy, as high inflation and tighter monetary policy weigh on business and consumer demand.
Economic data are already signalling a pullback in activity, as inflation cuts into consumers’ real spending power. “Even if the rise of the dollar was to stop here, the strengthening we’ve seen over the past 12 months would be enough to prompt further downgrades to earnings estimates just because of the foreign exchange headwinds,” said Max Kettner, a strategist with HSBC.
But U.S. companies with large businesses abroad suffer as the strong dollar lowers the value of their international sales and makes them less competitive compared with local rivals.
A slowdown across Europe and lockdowns in China designed to contain the spread of COVID-19 cases are also proving a thorn for U.S. companies with large foreign operations as demand slackens. Last week, IBM warned that the strengthening of the greenback could reduce its revenues this year by $3.5bn, including by about $900mn in the second quarter.