Dollar Excuses Aren’t Worth That Much
Dollar’s strength and weak overseas economies hurt companies’ results, and they also may mask deeper problems
It was easy to predict that dollar strength and weak overseas economies were going to lay into many companies’ first-quarter results. So the idea analysts and investors were somehow surprised can be a bit hard to take.
Here is where things stood with the dollar in the first quarter: It was 11% higher, on average, against a broad, trade-weighted basket of currencies tracked by the Federal Reserve. Within that, it was 13% higher versus both the Mexican peso and Canadian dollar, 16% versus the Japanese yen, 21% versus the Brazilian real and 22% against the euro.
That was known at quarter’s end. Analysts and investors should also have had a good sense of companies’ currency exposures because these are detailed in annual filings most companies submitted during the first quarter. On the economic front, it was also obvious Brazil had entered a recession, for example, and that China slowed markedly.
Yet, last week, shares of Praxair fell sharply after the industrial-gas company reported the strong dollar weighed on sales, missing estimates. Likewise, shares of Whirlpool dropped after it said the strong dollar and struggles in Brazil hurt results. Coach’s stock dropped after it reported results outside the U.S. got hit by the dollar. A week earlier, Harley-Davidson,3M and DuPont sold off after reporting currency and overseas woes.
Analysts are far from perfect, and investors often surprise in their ability to avoid discounting things that seem obvious. Still, the broad contours of what has happened with the dollar and overseas economies are clear enough the market shouldn’t have been caught off guard. Indeed, many other companies that reported overseas and currency hits, including Pfizer,United Technologies and McDonald’s, didn’t see their shares tumble.
For those that did, it is worth contemplating whether something else was afoot. Maybe there are problems in overseas operations that go beyond economic weakness and are running deeper than analysts knew. Maybe they are facing a tougher environment than investors suppose.
The dollar has weakened over the past month, and some global weak spots are improving. As welcome as those things may be, they can’t fix everything.