Geopolitical events and dollar strength drive $20.84 billion in aggregated foreign exchange impacts on earnings
May 1, 2019 (SAN DIEGO, CA) – Reaching levels not seen since 2015, publicly traded North American companies reported $20.84 billion in collective currency value losses in the fourth quarter of 2018, according to the most recent Kyriba Currency Impact Report (CIR), previously compiled by enterprise currency management leader FiREapps, now a Kyriba company. The quarterly report is the most comprehensive of its kind in detailing the impact of foreign exchange (FX) exposures among 1,200 companies in North America and Europe.
This nearly $21 billion in FX losses represents a 77% increase from the third quarter of last year when the collective loss was $11.81 billion.
“The impact of North American headwinds represents the most significant currency hit to top-line revenue in the last 12 quarters,” said Wolfgang Koester, Kyriba’s chief evangelist. “As this is the second quarter in a row of very significant negative currency impacts, publicly traded North American companies should analyze their foreign exchange currency holdings and make necessary adjustments to improve their earnings per share performance.”
The average negative currency impact per company inched up to $79 million in the fourth quarter from $52 million in the third quarter, while the number of North American companies reporting negative currency value impacts leapt from 265 to 301 quarter over quarter. Average EPS impact from this trend in the fourth quarter was $0.05, up 25% over the third quarter.
The medical equipment and supplies industry and the biotechnology and drug industry felt the greatest impact from negative currency adjustments as those industries were heavily affected by new Chinese government tariffs.
“While China’s devaluation of the yuan played the primary role in currency value losses in 2015, this time the ongoing U.S.-China trade war, as well as other geopolitical events such as Brexit, have had the greatest negative impact on currency holdings,” added Koester.
European companies experience less impact from currency value adjustments
On the other hand, publicly traded European companies moved in the opposite direction as North American companies, with less negative impact from currency adjustments. In the fourth quarter, European companies experienced a collective loss of $3.08 billion from negative currency impacts, down from a $3.8 billion loss in the third quarter.
Auto and truck parts as well as chemical manufacturing bore the brunt of the negative currency adjustments among European industries. These industries are managing supply chain uncertainties resulting from Brexit.
“Throughout 2016 to 2018, currency impacts to North American companies were pretty low while European companies had climbing impacts,” Koester said. “Now, we have the opposite trend, and part of the reason is companies generally don’t manage foreign exchange well during periods of low volatility. The lesson here is companies should be paying attention to and managing their foreign exchange exposures at all times because they never know when currency volatility will hit them as it now has again for North American companies.”
According to Koester, corporations should take the following steps to manage the potential volatility of individual currencies and improve their financial performance:
- Benchmark their currency impacts against the marketplace
- Manage their exposures for each currency pair
- Increase hedge ratios
Background on Kyriba Currency Impact Report
In this report, Kyriba analyzed the earnings calls of more than 1,200 publicly traded North American and European companies to collect data on the negative impact and volatility of various currencies. The Kyriba Q4 2018 Currency Impact Report, which is compiled through enterprise currency management leader FiREapps, a Kyriba company, can be used as a benchmarking tool for corporate boards and CFOs to gauge their company’s currency impacts in comparison to other multinational corporations.
To learn about specific industries that were affected and which currencies were most impactful to corporations, download the full Kyriba Currency Impact Report here.
About Kyriba Corp.
Kyriba empowers financial leaders and their teams with award-winning solutions for cash and risk management, payments and working capital optimization. Kyriba delivers a highly secure, 100% SaaS enterprise platform, superior bank connectivity and a seamlessly integrated solution set for tackling today’s most complex financial challenges. Thousands of companies, including many of the world’s largest organizations, rely on Kyriba to streamline key processes, protect against loss from fraud and financial risk, and accelerate growth opportunities through improved decision support. Kyriba is headquartered in San Diego, with offices in New York, Paris, London, Tokyo, Dubai and other major locations.
For more information, visit www.kyriba.com.
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